Still unknown is whether the falling rates will boost a homebuying market that looked moribund last year. Low interest rates often encourage purchases, but worries about the economy—telegraphed by the low rates—may hold purchasers back.

But the rate boon is already prompting borrowers to flood lenders with calls. They are hoping to save hundreds of dollars a month by refinancing their mortgages or use lower-rate loans to buy more-expensive homes.

“My applications are up across the board,” said Angela Martin, a Nashville, Tenn.-based loan officer at Movement Mortgage, a retail mortgage lender that originates about $13 billion of loans a year. “Every time the Fed starts talking is when my phone starts ringing off the hook.”
The Federal Reserve trimmed its benchmark interest rate last week for the first time in a decade and after several years of rate increases.

Ms. Martin said she has seen a sharp increase this week in applications for refinancings and new-home purchases.  […]