From Mortgages to Taxes to Estates: How to Prepare for Falling Interest Rates

As speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.

By Mallon FitzPatrick, CFP®, AEP®, CLU®

published 13 September 2025

in Features

A red arrow trending down above a percentage sign.

(Image credit: Getty Images)

There's growing speculation that the Federal Reserve might start lowering interest rates later this year or next.

While no one can precisely predict when, it's useful to consider how a lower rate environment could influence financial decisions related to housing, estate planning, taxes, investing and retirement.

Housing

Housing is often the most noticeable area affected by falling rates. A rate drop isn't a magic solution for your housing plans, but it is an opportunity to reset and gain flexibility.

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If mortgage rates decrease, mobility may increase, giving more families the freedom to buy, sell or relocate.

However, it's important to keep in mind the broader financial implications of moving, such as property and casualty insurance costs and availability.

Adjustable-rate mortgages (ARMs) taken out in 2021 or 2022 are nearing reset, and although refinance rates may not be as low as they were then, they still appear more favorable than current levels.

For some households, tapping into home equity via a HELOC might also be a smart option if borrowing costs decline.

What you can do: Review your mortgage and debt. If you have an ARM or other variable-rate debt, think about refinancing to a fixed rate while rates are still historically favorable.

A lower rate could also make it a good time to consider using home equity through a HELOC for planned expenses or debt consolidation.

Estate planning

Estate planning becomes more relevant in a lower-rate environment. Strategies like grantor retained annuity trusts (GRATs) and intrafamily loans become more effective when the IRS' Section 7520 rate drops.

It's easier to shift appreciation out of an estate when the so-called "hurdle rate" is lower, which can help preserve wealth for future generations.

What you can do: Reassess your estate plan. If you're a high-net-worth individual, consult with your estate planning attorney about strategies like a GRAT.

These become more effective when the IRS 7520 rate (a benchmark for trust asset valuation) is lower, enabling you to transfer more wealth to heirs tax-free.

Tax planning

Falling interest rates can suggest slowing inflation. Since federal tax brackets and the standard deduction are indexed to inflation, slower growth may lead to smaller upward adjustments. This could place more income into higher tax brackets.

Simultaneously, lower borrowing costs often boost asset values, increasing capital gains exposure — a beneficial challenge if managed carefully.

Lower rates may also encourage more charitable giving. Certain planned giving strategies become more advantageous if rates are lower.

For example, a charitable lead trust (CLT) might become more attractive than a charitable remainder trust.

It's worth noting that starting next year, a provision in the One Big Beautiful Bill (OBBB) will reduce the deduction for households in the highest tax bracket from 37% to 35%, so timing is critical.

What you can do: Analyze your tax strategy. A lower-rate environment may boost asset values, increasing exposure to capital gains taxes — a positive problem to have. Consider strategies like tax-loss harvesting to offset gains.

For charitable giving, a CLT might be more appealing, as lower rates reduce the gift tax value of the remainder interest.

Investing

In a lower-rate environment, diversification isn't just a strategy — it's your best defense.

Investments tend to respond strongly to changes in interest rates. Historically, large-cap stocks perform well when rates decline.

Companies benefit from cheaper borrowing, and investors often shift from bonds to stocks when yields fall.

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Nonetheless, diversification remains essential. While yields on new bonds may reset lower, the value of existing fixed income holdings typically rises.

Managing reinvestment risk alongside opportunities makes portfolio management more important than ever.

What you can do: Examine your asset allocation. While declining rates may favor equities, they also reduce yields on new bonds.

Ensure your portfolio balances growth-oriented assets (like stocks) with stable, income-producing assets (like bonds) to reduce longevity risk and support your long-term goals.

Retirement planning

Retirement planning also needs attention in a declining rate environment. Lower yields can make conservative portfolios more vulnerable, underscoring the importance of including growth assets that support long-term objectives.

A proper mix of fixed income stability and equity growth helps mitigate longevity risk in a world where bonds alone may no longer suffice.

What you can do: Update your retirement projections. Lower bond yields can impact the income from your retirement portfolio.

Run new projections using a more conservative income assumption from fixed-income assets to keep your spending plan sustainable.

Adjust your savings rate or portfolio mix as needed.

Putting it all together

The potential of falling interest rates isn't a signal to overhaul your entire financial plan, but rather an opportunity to review and refine it. A proactive approach is vital.

By understanding how these changes could impact your housing, estate, tax and investment strategies, you can position your finances to benefit from the new environment.

The shift toward lower rates highlights the timeless importance of a well-diversified portfolio and a long-term perspective. While short-term market reactions may grab headlines, the true measure of a sound financial plan lies in its resilience and adaptability.

I often remind clients that the goal isn't to predict the future but to prepare for it, whatever it may bring.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Mallon FitzPatrick leads Robertson Stephens’ Wealth Planning Team and delivers comprehensive wealth planning solutions for high-net-worth and ultra-high-net-worth clients. He collaborates with clients to develop a strategy that integrates tax planning, risk management, philanthropy, liquidity and balance sheet management, estate planning and investments. Ultimately, the client is provided with a cohesive wealth plan that helps increase the likelihood of experiencing good outcomes, meets their objectives and aligns with their preferences.