Mortgage rates plummeted to their lowest point in nearly three years this Friday, following an announcement by former President Donald Trump regarding significant government intervention to lower borrowing costs.

In a surprising update on Truth Social, Trump revealed that he had instructed major mortgage entities Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds. This strategy quickly sent waves through the financial sector.

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

The market reacted swiftly. New data released this afternoon shows the average rate on a 30-year fixed mortgage has fallen by 22 basis points to 5.99 percent, according to figures from Mortgage News Daily. This matches the lowest levels seen since February 2023 and represents a significant decrease from last year’s peak, which exceeded 7 percent.

Even modest rate reductions can lead to considerable savings. For instance, a buyer purchasing a median-priced home in the U.S., valued at approximately $425,000, could save around $118 per month if rates decline to 5.9 percent, assuming a 20 percent down payment.

For first-time buyers already stretched to the limit, that could be enough to tip the balance — although saving for a down payment remains the biggest obstacle. 

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.

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 

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.