Trump’s Plan to Buy Mortgage Bonds May Cause Mortgage Rates To Drop

President Trump has unveiled a directive for Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities (MBS), aiming squarely at one thing: lower mortgage rates. In theory, this massive bond-buying move is designed to make home loans cheaper and bring buyers and homeowners back into the market.

How Buying Mortgage Bonds Pushes Rates Down

Mortgage rates the market for mortgage-backed securities—the bonds that package thousands of home loans and sell them to investors.

When a major buyer steps into that market and starts purchasing mortgage bonds at scale, the supply of available mortgage bonds tightens because a large share is being absorbed by a single buyer. At the same time, demand increases because those bonds are suddenly more sought after. As demand rises and supply tightens, bond prices go up. When bond prices go up, yields go down. And when yields fall, mortgage rates follow.

That’s the entire strategy behind this directive. By instructing Fannie Mae and Freddie Mac to buy $200 billion in mortgage-backed securities, the government is effectively acting as a shock absorber in the bond market. Higher bond prices translate into lower yields, and lower yields allow lenders to offer lower mortgage rates while maintaining profitability.

This approach isn’t new. The Federal Reserve used a similar strategy during the pandemic, buying massive amounts of mortgage bonds to stabilize housing and drive rates lower. While this program is smaller in scale than what the Fed executed in 2020, the mechanism is the same: increase demand for mortgage bonds, compress spreads, and reduce borrowing costs for consumers.

How Low Could Mortgage Rates Go?

Mortgage rates have already moved meaningfully off their highs. After touching the 7% range in early 2025, rates have drifted down into the low 6s. The bond-buying directive adds another tailwind.

Some analysts believe this move alone could shave  anywhere from 0.25-1% off mortgage rates, and we already saw rates fall slightly immediately after the announcement. A drop by 0.5% can lower monthly payments enough to change affordability calculations for millions of households. 

More aggressive forecasts suggest something bigger. Prior to this announcement, several analysts expected 30-year mortgage rates to settle around 5.75% by late 2025. With direct mortgage bond purchases now in play, that expectation has shifted closer to 5%. A 5% mortgage rate would represent the lowest sustained level in years and would materially improve affordability compared to recent norms.

No one is suggesting a return to the 3% mortgage era. Those rates were a product of emergency monetary policy and unprecedented stimulus. But a move from the 6s into the low 5s is still a significant reset—and one that could meaningfully reshape both refinance activity and homebuyer demand.

What Falling Mortgage Rates Mean for Refinancing

For homeowners, falling mortgage rates create opportunity—and for many, a second chance.

If you didn’t refinance during 2020 or 2021, you may be sitting on a mortgage with a rate that no longer reflects your options. Homeowners who purchased in 2022 or 2023 often locked in rates north of 6%. A move toward 5% opens the door to meaningful monthly savings.

A 1%  drop in rate can translate into hundreds of dollars per month in reduced payments. Over time, that adds up to tens of thousands of dollars in interest savings.

There’s also renewed relevance for cash-out refinance strategies. Many homeowners accumulated substantial equity over the past several years but avoided tapping it because refinancing meant giving up a low rate for a much higher one. As mortgage rates fall, cash-out refinance options become more practical again—especially for homeowners looking to consolidate high-interest debt, fund renovations, or reposition their finances more efficiently.

Another strategy worth revisiting is the no closing cost refinance. Instead of paying thousands upfront in refinance fees, borrowers can structure loans where closing costs are covered through lender credits or slight pricing adjustments. This is particularly useful in a declining-rate environment. If rates continue to move lower, homeowners can refinance again later without having sunk large sums into repeated closing costs.

The key takeaway: falling mortgage rates don’t just benefit buyers. They create real, actionable opportunities for existing homeowners—especially those who have been waiting for the math to finally make sense again.

What This Means for Homebuyers

Lower mortgage rates don’t just reduce monthly payments. They expand buying power for anyone who wants to buy a home.

When rates fall, buyers can afford more home for the same monthly budget. That alone brings more people off the sidelines. Buyers who were priced out at 6.5% suddenly qualify at 5.5%. Buyers who were stretching at 6% suddenly feel comfortable again.

As rates move lower, demand predictably increases. More buyers qualify. More buyers act. And competition returns.

This is the tradeoff buyers need to understand clearly. Lower mortgage rates improve affordability on paper, but they also tend to drive prices higher as demand picks up. More buyers chasing the same limited housing inventory often results in multiple offers, faster sales, and upward pressure on home prices.

For buyers, timing becomes strategic. Waiting for the lowest possible rate may mean competing in a much hotter market. Buying sooner—before demand fully surges—and refinancing later can sometimes be the more effective path. It’s not the right strategy for everyone, but it’s one worth considering as rates trend downward.

The buyers who tend to win in shifting markets are the ones who prepare early: strong preapprovals, realistic payment expectations, and financing strategies that allow flexibility as rates evolve.

A Narrow but Meaningful Window

The directive to purchase $200 billion in mortgage bonds is a clear signal that housing affordability is a priority—and that mortgage rates are being actively targeted as part of the solution.

The window is narrow because policy-driven rate relief rarely lasts in isolation. As mortgage rates fall, demand doesn’t ease in gradually—it accelerates. Buyers who have been sidelined re-enter the market at once. Refinance volume surges. Lenders get busy. Inventory doesn’t magically increase. The conditions that make rates attractive are often the same conditions that cause competition to snap back quickly.

If mortgage rates continue to fall, both homeowners and buyers will have an opportunity—but timing matters. Homeowners may finally be able to refinance on favorable terms, restructure debt, or access equity without taking on punitive interest costs. Buyers may regain purchasing power that’s been missing for years.

But as rates fall and demand rises, the advantage shifts fast. Competition intensifies, pricing pressure returns, and lenders tighten timelines. What starts as an affordability boost can quickly turn into a competitive market where hesitation costs leverage.

Understanding how mortgage rates work—and how policy decisions ripple through the market—allows borrowers to move with intention instead of reacting late. Whether you’re considering a refinance, a cash-out refinance, or buying a home in a changing rate environment, preparation and timing matter more than ever.

Final Thoughts: What Matters Most Right Now

This push to buy mortgage bonds is meant to drive rates lower. If it works, homeowners may have an opportunity to refinance, lower payments, or tap equity more efficiently through a cash-out refinance. Buyers may regain purchasing power that’s been squeezed by higher rates.

But falling mortgage rates change behavior fast. Demand returns, competition increases, and timing matters. The borrowers who benefit most aren’t waiting for the perfect moment—they’re prepared to act.

That’s where LendFriend Mortgage comes in. We don’t sell one-size-fits-all loans. We help borrowers turn lower mortgage rates into smart, executable strategies—whether that’s a refinance, a no closing cost refinance, or positioning a buyer to compete as the market heats up.

The bottom line: falling mortgage rates create opportunity. Don't let that opportunity pass you buy. Schedule a call with me today or get in touch with me by completing this quick form to get started on your homebuying or refinancing journey today.