Mortgage rates fell again last week and with expectations that they could fall further, demand for mortgages suddenly increased, especially for refinancing.

The Federal Reserve is expected to make its first rate cut in four years on Wednesday, and while mortgage rates don’t exactly follow the Fed, they are influenced by policy. It’s likely they will act on Fed Chair Jerome Powell’s comments after the decision.

“The key takeaway is that lower mortgage rates aren’t just not remotely guaranteed by the Fed rate cut. They’re already here,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “The direction depends on the dot plot and Powell’s comments at the press conference. It could go either way, and the volatility could be significant.”

Total mortgage application volume rose 14.2% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Last week’s results include an adjustment for the Labor Day holiday.

The average contractual interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less fell to 6.15% from 6.29%, with points rising to 0.56 from 0.55, including origination fees, for loans with a 20% down payment. That’s the lowest rate since September 2022 and is down 116 basis points from the same week a year ago.

“Application activity increased significantly last week as the market expected the Fed to cut rates and mortgage rates fell,” said Joel Kan, an economist at the Mortgage Bankers Association.

Applications to refinance mortgages rose 24% from the previous week and were up 127% from the same week a year ago. Most of those applicants likely bought their homes in the past two years, when rates rose sharply from the record lows seen in the first two years of the Covid-19 pandemic. Even with this large increase in volume, it’s coming from a very low base, as the vast majority of borrowers have loans with interest rates well below 5%. Both conventional and government refinancing activity surged to the fastest pace since 2022.

The number of mortgage applications for home purchases rose 5% in the week, but was still 0.4% lower than the same week a year ago.

“It’s notable that conventional purchase applications rose at a pace higher than last year, which also brought total purchase applications very close to year-ago levels,” Kan said. “Homebuyers are seeing improving affordability conditions, fueled by lower rates and slower home price growth.”