U.S. stocks leapt to record heights Wednesday before moderating their gains as the Federal Reserve delivered an interest rate cut on the bigger side of expectations, reducing its benchmark rate by 50 basis points.

Little changed in trading Wednesday ahead of the central bank’s action at 2 p.m. Eastern time, in the wake of which equities surged, with the Dow Jones Industrial Average jumping more than 200 points to a new record before dialing back on its gains, up 154 points, or 0.4% as of 3 p.m.

The decision by the Federal Reserve’s policy-setting committee to cut interest rates for the first time since 2020 was prefaced by an unusual amount of market uncertainty as to how much the Fed would lower its benchmark rate from a two-decade high of 5.25% to 5.5%, where it has stood since July 2023. 

Art Hogan, chief market strategist at B. Riley Wealth Management, said the Fed’s messaging is more important than the exact size of its cut, as the central bank embarks on what is likely to be a series of reductions through this year and next. “Whether it’s a quarter or half a point, it’s much more about where they are going and when are they going to stop,” Hogan told CBS MoneyWatch. 

Short-term impacts aside, the Fed’s move is largely seen as positive for the economy as well as for the broad stock market.

“We anticipate that these Fed cuts should have a positive effect on the economy and markets in 2025. We believe the global economy is likely to benefit as well, as major central banks around the world have already cut rates or are on the verge of doing so,” Scott Wren, senior global market strategist at Wells Fargo, said in a note.

“Market environments with declining rates and rising profits tend to be supportive of equity prices,” according to John Lynch, chief investment officer for Comerica Wealth Management. “A few cuts are welcome, more cuts would be troublesome,” Lynch said. 

Expectations of Fed rate cuts have had investors shifting gears and gravitating toward public companies that are interest-rate sensitive, including dividend stocks, telecoms, consumer staples, utilities and real estate investment trusts, Hogan offered. 

Public companies with smaller market capitalization are likely to draw more interest in an environment with falling interest rates and steady economic growth, according to Hogan, who pointed out that the segment is well-priced, given its relative underperformance.

“You’ve got the ingredients for a rally in small caps,” said Hogan.

Bringing down interest rates should drive some much-needed inventory out of existing home sales and fuel economic activity. 

Reductions in short-term interest rates should be a boon for dividend-paying stocks, particularly in the financial sector, as lower rates reduce the cost of funding for banks. Other beneficiaries include public companies that would benefit from cheaper debt financing and lower interest rates. 

Real estate stocks are also likely to benefit as lower rates reduce borrowing costs for buyers. 

The Fed’s rate cut and messaging is directing Wall Street’s concerns toward jobs and away from higher costs. “We are less concerned about inflation and more concerned about a soft landing in the labor market,” said Hogan.

Even though mortgage interest rates surged in recent years, they did little to drop home values. Instead, home prices have remained steady and even grown in many parts of the country. Now, with a major cut to the federal funds rate already issued and additional ones possible for the months ahead, prices could rise again as sellers try to take advantage of a wider pool of buyers. Homes that had been priced in the $700,000 range, for example, could now be around $800,000 or $850,000. And homes priced at $1 million or more are already growing.

Understanding this reality, then, buyers should start preparing for higher home prices now. One of the best ways to do so is by calculating the potential monthly costs of a mortgage loan. Below, we’ll detail what an $850,000 mortgage will cost per month – and what it could look like if interest rates decline as anticipated.

See what mortgage interest rate you could lock in here now.

How much will a $850,000 mortgage cost per month?

The average mortgage rate on a 30-year mortgage dropped to 6.15% this week, the lowest it’s been in two years (September 2022). But with rate cuts possible for November and when the Fed meets again in December that rate could fall again before the year ends – assuming lenders don’t start pricing in a series of presumed rate cuts to come. 

Here’s what an $850,000 mortgage loan would cost per month at the rate available today, assuming the conventional 20% down payment ($170,000), minus any taxes or insurance costs:

• 30-year mortgage at 6.15%: $4,142.75 per month
• 15-year mortgage at 5.65%: $5,610.44 per month

While today’s mortgage rates aren’t likely to fall directly in tandem with the federal funds rate, a half a percentage point reduction seems possible now following the Fed’s moves this week. Here’s what those payments could fall to assuming a half a percentage point reduction between now and January.

• 30-year mortgage at 5.65%: $3,925.20 per month 
• 15-year mortgage at 5.15%: $5,430.68 per month 

It’s important to remember, however, that mortgage interest rates change daily (except for weekends and holidays). And in today’s evolving rate climate, these rates could fall even further than many anticipate, thus making an $850,000 mortgage loan even more affordable. So keep an eye on the market and be prepared to lock in a low rate when found.

Start shopping for rates and lenders here now.

Other factors to account for

While the above numbers reflect what buyers can expect to pay for an $850,000 mortgage now (and after a rate reduction of half a percentage point), they’re not the only factor that should be added in when trying to pinpoint your exact monthly mortgage payment. Specifically, don’t forget:

• Homeowners insurance: The bank will want their loan protected and you’ll want to be insured against theft, damage and injuries. Start shopping around now to find the best deal and consider “bundling” any policy with your car insurance to reduce costs.
• Flood insurance: Depending on where your home is located, the lender may require flood insurance proof before signing off on the loan. So be sure to ask if the home is located in a flood zone and ask if you can assume the existing policy, if applicable.
• Taxes: Taxes could be paid annually or you can have them divided among your monthly mortgage payments but this could be a significant amount of money to account for so be sure to determine the exact cost before closing, and, ideally, before making a formal offer.
• Private mortgage insurance: Don’t have enough money to make the conventional 20% down payment? Then you’ll have to pay private mortgage insurance, or PMI, to your lender until you’ve reached that equity threshold. 

The bottom line

The Fed’s rate cuts could make the monthly payments on an $850,000 mortgage a lot more affordable, but navigating the current real estate market still requires careful consideration of a range of factors. As interest rates fluctuate and home prices adjust, the market could shift, and potential buyers may want to stay informed about trends but also thoroughly calculate all associated costs during the process. That way, they can make more confident decisions about their path to homeownership.