Every time the Fed meets, investors ask whether their mortgage rates will move. The answer is almost never "yes, directly." The Fed funds rate, the 10-year Treasury, and your DSCR rate are three separate numbers that happen to correlate imperfectly. Here's how they actually connect.
The Three Rates
Fed Funds Rate
The rate at which banks lend to each other overnight. Controlled directly by the Fed via FOMC meetings. Short-term in nature. Drives HELOC rates, credit card rates, and variable-rate business loans closely. Drives long-term mortgage rates only indirectly.
10-Year Treasury Yield
Set by the market, not the Fed. Reflects market expectations of inflation and economic growth over a 10-year horizon. This is the rate that most directly drives 30-year mortgage pricing.
Your DSCR or Mortgage Rate
Built on top of the 10-year Treasury plus a spread reflecting risk, product type, and market conditions. For investor DSCR loans, the spread over 10-year is typically 250-350 bps.
How Fed Moves Transmit
When the Fed cuts, short-term rates drop immediately. Long-term rates (10-year) may or may not drop — they depend on what the market believes about the future path of rates and inflation.
Example: In 2024, the Fed cut 100 bps but the 10-year Treasury actually rose slightly because the market re-priced inflation expectations higher. DSCR rates barely moved, or went up in some quarters.
Why Rates Don't Always Follow the Fed
- Long-term rates incorporate expectations, not just current conditions
- Demand for Treasuries from foreign buyers and banks affects yields
- Inflation expectations dominate in the intermediate term
- Treasury supply (government borrowing) affects yields
What Actually Moves Your Rate
- 10-year Treasury changes
- Credit spreads on investor products (can widen or tighten independent of Treasuries)
- Lender-specific pricing adjustments
- Product mix shifts (IO vs. amortizing, prepay vs. no-prepay)
Real Examples from 2024-2025
| Date | Fed Funds | 10-Yr | DSCR Rate (75% LTV) |
|---|---|---|---|
| Jan 2024 | 5.50% | 4.05% | 8.40% |
| Sep 2024 | 5.00% | 3.75% | 8.00% |
| Jan 2025 | 4.50% | 4.60% | 8.35% |
| Sep 2025 | 4.25% | 4.20% | 7.75% |
Note how Fed cuts between Jan 2024 and Jan 2025 lowered Fed funds by 100 bps, but DSCR rates ended only 5 bps lower. The 10-year Treasury actually rose during that window.
Strategy Implications
- Don't time the Fed. Waiting for "the next cut" to close a deal is usually a losing bet on long-term rates.
- Watch the 10-year. If you're trying to time a refinance, the 10-year Treasury is a better signal than Fed funds.
- Accept uncertainty. If your deal pencils at today's rates, close it. Bonus if rates drop later.
- Variable-rate bridge loans track Fed more directly. If you're in a variable-rate bridge loan, Fed cuts do lower your payment.
Bridge Loan Rates Are Different
Bridge loan rates are driven more by private credit conditions and investor risk appetite than by the Fed. When capital markets are stressed (like Q1 2023), bridge rates widen sharply regardless of Fed action. When capital is abundant, bridge rates compress even without Fed moves.
Bottom Line
The Fed matters for the economy. It matters for short-term rates. It doesn't directly control your mortgage rate. If you want to predict where DSCR pricing is headed, watch the 10-year Treasury, credit spreads on agency MBS, and inflation data — not the Fed funds rate in isolation.
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