A rate cut lowers interest rates set by a central bank, which eventually lowers mortgage rates offered by lenders. How much this affects monthly mortgage payments depends on:
✅ 1. Whether you already have a mortgage
Fixed-rate mortgage
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No immediate change. Your payment stays the same.
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You only benefit if you refinance into a new mortgage at a lower rate.
Adjustable-rate mortgage (ARM)
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Payments drop automatically when your rate resets—if the benchmark index falls due to the rate cut.
✅ 2. How much payments change for new mortgages
For new loans, even a small rate change can have a noticeable impact.
Rule of thumb
Every 1% change in mortgage rate changes the monthly payment by about 10% (for a 30-year loan).
📊 Example: Effect of a 1% rate cut
Loan: $400,000, 30-year fixed
| Rate | Monthly Payment |
|---|---|
| 7% | $2,661 |
| 6% | $2,398 |
Savings from a 1% cut: ~$263 per month
Annual savings: ~$3,156
Lifetime interest saved: ~$94,000+
📉 Smaller rate cuts
Impact scales roughly linearly:
0.25% (¼-point) cut
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Lowers payment by ~2.5%
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On a $400k loan: ~$60–70/month savings
0.50% (½-point) cut
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Lowers payment by ~5%
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On a $400k loan: ~$120–140/month savings
