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June Fed Pause: Fixed vs ARM Strategy
June 23, 2025 | Posted by: Carshena Ross Esq.
Fed Holds Steady: Why Mortgage Pros Should Care
On June 18 2025, the Federal Open Market Committee (FOMC) left its federal funds target range unchanged at 4.75 % – 5.00 %. While a "pause" sounds like a non-event, it reshapes the conversation every mortgage broker and loan officer will have this summer. Should clients lock a fixed rate now, or does an adjustable-rate mortgage (ARM) still make sense? Let's unpack the ripple effects.
Fixed-Rate Mortgages: Stability in a Volatile Year
Thirty-year fixed mortgage rates track the 10-year Treasury yield plus a risk spread. After the Fed announcement, yields slipped as bond traders priced in two potential cuts later this year. Lenders responded by trimming advertised 30-year fixed offers by roughly 0.10 percentage points. That isn't a fire-sale, but it's the first meaningful improvement since February. For buyers craving payment certainty, or homeowners with rate-shock fatigue at renewal, this pause could be the window they hoped for.
ARMs: Short-Term Savings, Long-Term Questions
ARMs are usually pegged to short-term benchmarks such as the SOFR or 1-year Treasury. With the fed-funds rate flat, initial ARM teaser rates remain 0.60 %–0.90 % lower than their fixed-rate cousins. Monthly savings on a $400,000 balance can top $200. The trade-off? Future resets. If the Fed only cuts once, or reverses course, payments could jump after the initial period. Brokers should model two or three rate-path scenarios so clients see the breakeven point versus a fixed loan.
How the Pause Affects Qualification
Most lenders use the note rate plus a cushion to calculate debt-to-income (DTI). Even a small drop in fixed rates can add $10,000-plus to purchasing power for median U.S. borrowers. ARMs help even more because their lower start rate lowers the qualifying payment-handy for first-timers pushing against DTI caps. Keep an eye on lender "caps" that limit how much of a loan pipeline may be ARM; some wholesalers reduced their cap after the 2022 volatility.
Smart Moves for the Remainder of 2025
- Layer the terms: Split larger balances between a 30-year fixed and a 7/6 ARM. Clients enjoy partial stability and partial savings.
- Early rate-lock: Secure a 90-day lock with a float-down option; if Treasuries fall on dovish Fed commentary, you can relock lower.
- Cash-out caution: Equity taps should favor fixed rates, ARM resets could erase the benefit of lower initial APRs.
- Refi runway: Suggest a no-cost refinance if the Fed delivers the cuts markets expect; have the paperwork ready.
- ARM watchlist: For clients already in 5/1 or 7/1 loans, schedule annual reviews to plan before the first adjustment.
The bottom line: a pause is not a plateau. Market-implied probabilities still see the first quarter-point cut as early as September; but sticky inflation or an unexpected jobs surge could push yields higher in weeks. Give us a call and we can discuss any questions you might have.
Frequently Asked Questions
Q1. Does the Fed's pause automatically lower mortgage rates?
A1. No. Fixed mortgage rates follow bond yields, which can move independently. The pause influenced sentiment, but the 10-year Treasury is the real driver.
Q2. How much lower are ARM rates than fixed rates right now?
A2. As of the week after the meeting, many 5/6 ARMs are pricing about 0.75 % below comparable 30-year fixed quotes, though that varies by credit score and loan size.
Q3. Is it risky to choose an ARM when rate cuts are forecast?
A3. Cuts can help-but they're not guaranteed. If inflation stays above target, the Fed could hold or hike again, causing ARM adjustments to rise. Balance savings versus uncertainty.
Q4. Can I switch from an ARM to a fixed later without a penalty?
A4. Many lenders allow a streamlined refinance after 6–12 months if you stay with the same servicer. You'll still pay closing costs unless you negotiate lender-paid credits.
Q5. What's the best first step if my loan renews this winter?
A5. Get a rate-hold quote now and set calendar reminders for 60 and 30 days before renewal. That gives you time to monitor market moves and pivot between products.
