Expectations that the Federal Reserve will soon begin cutting interest rates have driven mortgage rates to their lowest levels in over a year Wednesday, positively impacting both new mortgage applications and refinancing of existing loans.

The average contract interest rate for 30-year fixed-rate mortgages — with conforming loan balances of $766,550 or less — fell significantly by 27 basis points to 6.55% for the week ending Aug. 2, marking the lowest rate since early May 2023

The decrease of 27 basis points from the rate of 6.82% on July 26 represents the largest weekly drop since July 2022 and reflects sizable reductions in Treasury yields.

The 30-year Treasury yield, a...