Answer: Sometimes when the Fed cuts short term interest rates, mortgage rates fall too.   In most cases, mortgage rates don't also fall.  Here's why.

Find your loan documents and read along.

30 Year Fixed Rate Mortgages

Consider 30-year fixed rate mortgages.  The 30-year fixed rate mortgage is not tied to short-term treasuries.  Fixed mortgage rates are tied to long-term bond yields.  These rates change based on the outlook for the economy and inflation.  True, even as the Fed has lowered rates, the 30-year fixed has come down, but that’s because of the outlook for slower economic growth in the months ahead.  While the decline in treasury yields has helped push mortgage rates lower, the decline in long term rates has not changed in the same ways and has not changed in the same time frames.  That's because these mortgages are packaged, securitized, and sold globally.  The investors buying these "mortgage securities" now demand a higher risk premium on these mortgages because more borrowers are paying late and there are more foreclosures.

7 & 5-1 Adjustable Rate Mortgages

Consider 7 and 5-1 Adjustable Rate Mortgages (ARMs).  Yes, this is good news if your 5-year (or 7 year) ARM is pegged to a treasury index.   For example, if you’re facing an ARM reset on, say, a $200,000 loan, you’re now getting a payment increase of about $150 a month, compared to $370 a month, which you would have had before the Fed started cutting rates - a savings to you of $220 per month on the same loan.

Do the Fed Rate Drops Help  Sub-Prime Mortgage Holders?

No.  Unfortunately, if you have a sub-prime ARM, it is more than likely pegged to the London Inter Bank Offered Rate (LIBOR), the most famous barometer for short-term interest rates in the world.  The LIBOR rate has moved in the opposite direction.  Because of the liquidity issues in global financial markets, LIBOR rates have actually increased at the same time that treasury and other benchmark yields have declined.  That means that Fed moves that lower rates today would not help too many sub-prime mortgage holders.

How are rates for Home Equity Lines of Credit Affected?

How about my Home Equity Line of Credit (HELOC)?:  Yes, if you have a home equity line of credit that you used to renovate your bathroom/kitchen recently, then when the Fed lowers rates, your rate comes down too.  That’s because HELOCs are predominantly pegged to the prime rate, which moves in step with the Federal Reserve.