A significant drop in mortgage rates has taken the financial world by storm, reaching their lowest levels in close to three years. This sudden change followed an unexpected announcement by former President Donald Trump, who declared a sweeping government initiative to reduce borrowing expenses.

In a surprise message posted on Truth Social, Trump revealed his directive for major mortgage financiers, Fannie Mae and Freddie Mac, to purchase $200 billion worth of mortgage bonds. This announcement sent immediate ripples through financial markets, influencing rates across the board.

“This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable,” Trump stated in his post on Thursday.

The effect was almost instantaneous, as reported today. According to Mortgage News Daily, the average rate for a 30-year fixed mortgage decreased by 22 basis points, settling at 5.99 percent. This rate matches the lowest since February 2023 and signifies a notable decline from the previous year’s peak over 7 percent.

Even minor reductions in rates can accumulate to substantial savings. For instance, on a median-priced home in the United States, costing approximately $425,000, a buyer with a 20 percent down payment could save around $118 monthly if rates drop to 5.9 percent.

President Donald Trump said he had ordered government-backed mortgage giants to buy $200 billion in mortgage bonds, a move that helped push mortgage rates to their lowest level in nearly three years

For first-time buyers, who often find themselves financially stretched, this reduction could be crucial. However, the challenge of saving for a down payment continues to be a significant hurdle.

But there is a twist — one that is bad news for buyers but a relief for existing homeowners worried about falling prices.

Lower mortgage rates can actually push home prices higher by pulling more buyers back into the market at a time when there are still too few homes for sale.

At the heart of the move are mortgage-backed securities, often called mortgage bonds. These are bundles of home loans that are packaged together and sold to investors, such as pension funds and asset managers. 

When investors buy these bonds, the companies that lend money to Americans — from big banks like Wells Fargo to specialists such as Rocket Mortgage, the largest in the US — get their money back faster. That frees them up to issue new mortgages and offer lower interest rates to borrowers. 

Fannie Mae and Freddie Mac don’t make home loans themselves. Instead, they buy mortgages from banks, bundle them into these bonds, and sell them on.

By stepping in as a major buyer of mortgage bonds, the government is effectively boosting demand for those securities, pushing up their prices and pushing down the interest rates tied to new mortgages.

It’s a playbook the US has used before. During the early months of the Covid crisis, the Federal Reserve bought hundreds of billions of dollars in mortgage bonds to stabilize markets. 

Combined with near-zero interest rates, that helped drive mortgage costs to historic lows — with 30-year rates falling to around 2.75 percent in early 2021.

Analysts say the scale of Trump’s proposed $200 billion purchase is large enough to matter. ‘The reaction in the mortgage-bond market tells you this is meaningful,’ said Matthew Graham of Mortgage News Daily, which tracks rates closely.

Most forecasts suggest the move could ultimately shave between 0.25 and 0.5 percentage points off mortgage rates, which were roughly 6.2 percent before the announcement.

Home values are falling across much of the US, with Denver among the hardest-hit markets — 91 percent of homes there are now below their peak, according to Zillow. 

Homebuilder stocks jumped on the news, though many builders have already been quietly buying down mortgage rates themselves to lure buyers.

Analysts say the bigger benefit may be psychological, encouraging hesitant buyers back into the market and allowing builders to scale back costly incentives.

Still, economists warn the move is no silver bullet. Home prices remain nearly 50 percent higher than before the pandemic, and many buyers struggle to qualify even with rates below 5 percent. A chronic shortage of homes for sale continues to weigh on affordability.

There are also risks. Fannie Mae and Freddie Mac’s cash reserves are designed to act as a buffer in a downturn. Spending a large chunk of that money now could leave them more exposed if the housing market weakens unexpectedly.

For existing homeowners, falling rates could unlock another wave of refinancing. 

Mortgage refinance applications were already more than double last year’s levels before the announcement, according to industry data. A common rule of thumb is that refinancing makes sense if borrowers can cut at least 0.75 percentage points off their rate — a threshold that more homeowners could soon cross.

A common rule of thumb is that refinancing makes sense if borrowers can cut at least 0.75 percentage points off their rate — a threshold that more homeowners could soon cross.

Even so, most Americans are still sitting on mortgages below 4 percent, locked in from the pandemic era. 

And while government bond-buying can lower rates temporarily, analysts caution that it does little to fix the deeper problem: not enough homes, and prices that remain far out of reach for many buyers.