From mortgages to investing and more, declining interest rates can create potential opportunities — and some challenges. These tips can help you pursue your goals.
Interest rate cuts by the Federal Reserve (the Fed) in late 2025 signaled a new era of declining rates. "Unless inflation reignites, we expect two additional cuts in 2026," says Matthew Diczok, head of Fixed Income Strategy for the Chief Investment Office, Merrill and Bank of America Private Bank.
What could that mean for your finances? While declining rates aim to stimulate growth and hiring in the wider economy, they could affect everything from your cost of borrowing to how you save and invest. While the Fed rate cuts may not immediately be reflected in the interest rates available to the consumer, as the rate-easing cycle continues, the following moves might be worth considering. The timing of any decisions you make may depend on where you believe rates are headed next and your personal situation, Diczok says. An advisor, if you work with one, can help you determine whether adjustments make sense for you.
4 ways lower rates could affect your finances
1.
Mortgages become more accessible
Mortgage rates came down incrementally in 2025,Footnote 1 and further declines could make homeownership a bit more affordable.
What you can do: If you've been waiting on the sidelines, declining rates could provide an opportunity to explore ownership, Diczok says. And for existing mortgage holders, refinancing could potentially offer lower rates or shorter loan terms. A drop of 1 to 2% below your current mortgage rate could make refinancing attractive, depending on how much longer you plan to live in the home. Whether buying or refinancing, of course, it's important to weigh the variables and costs, as well as the likelihood of future rate cuts, before making any decisions, he adds.
2.
Borrowing becomes cheaper
Fed rate decisions apply directly to the federal funds rate, the rate banks charge one another for overnight loans. Indirectly, cuts tend to cascade through the economy, bringing down the rates for auto and personal loans and credit cards.
What you can do: If you have a number of debts at higher rates, as rates come down, you could think about taking out a home equity line of credit (HELOC) to pay them off at a lower rate. That way, the interest you pay would likely be lower than what you're currently paying and you'd only have one bill every month, instead of multiple payments. But keep in mind that because the HELOC uses your home as collateral, it's important to make sure you can comfortably make the regular payments, Diczok advises.
"The flipside of lower borrowing costs: You earn less interest from savings accounts and money market accounts when rates fall."
— Matthew Diczok, head of Fixed Income Strategy,
Chief Investment Office, Merrill and Bank of America Private Bank
"The flipside of lower borrowing costs: You earn less interest from savings accounts and money market accounts when rates fall," Diczok says. "Cash is especially sensitive to lower rates and could lose ground to inflation," if
the rate of rising prices approaches or surpasses the earnings you're getting on cash.
What you can do: You might look into moving excess cash — money you don't need for daily expenses — from savings accounts to longer-term CDs or other cash management solutions offering higher rates. Now is also a good time to review your bond holdings, Diczok suggests. Shifting short-term bonds or excess cash into
longer-term bonds could enable you to lock in higher income before rates potentially decline further.
Tip: Retirees who rely on interest income to pay their monthly expenses should evaluate how rate cuts might affect their budget.
Checklist: Smart moves to consider:
- Refinance your mortgage.
- Shift cash from savings accounts to long-term CDs or other cash management solutions.
- Lock in higher income in long-term bonds.
- Explore potential investment opportunities in the housing, auto and financial sectors, as well as dividend-paying stocks and small caps.
4.
Stock portfolios could get a boost
Declining interest rates are generally favorable for stocks, Diczok says. Lower borrowing costs can make it easier for companies to expand and grow, and a boost in hiring can give consumers confidence to keep spending.
What you can do: Review your equity holdings with an eye toward potentially adding exposure to industries like housing, automotive and financials, which could see a spike in demand as consumer borrowing costs decline.
Dividend-paying companies in industries such as utilities also tend to perform well during times of lower interest rates, Diczok says. In addition, lower rates could create
potential opportunities for smaller companies, giving them greater access to the capital they need for growth.
Tip: Dividend income, though not guaranteed, could help offset potentially lower income from cash and bonds in your portfolio.
Keep in mind that interest rates are just one of many factors that play into your financial decisions, Diczok cautions. Unforeseen geopolitical events or economic shifts can create stock market volatility or impact the housing market and the economy in general. Likewise, much depends on your personal financial situation, including your debts, liquidity, investments and personal goals. If you
work with an advisor, they can help you consider what a potential declining rate environment could mean for you.
Footnote 1 CBS News, "Here's how far mortgage rates have dropped in 2025 (and how much further they can still fall)," Sept. 5, 2025.
Important Disclosures
The opinions expressed are as of October 1, 2025 and are subject to change.
Investing involves risk, including the possible loss of principal.
Past performance is no guarantee of future results.
Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice-versa. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. The risk that exchange rate fluctuations will reduce the value of returns arises when investments denominated in foreign currencies are purchased.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
BofA Global Research is research produced by BofA Securities, Inc. ("BofAS") and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC and wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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