Mortgage rates hit a 21-year high this week, a milestone that makes home buying a much more expensive prospect for those who are interested in doing so. According to Freddie Mac, the rate for a 30-year fixed-rate mortgage has climbed to 7.09 percent, an uptick from the 5.13 percent it was at a year prior.
A mortgage rate is “the interest rate charged for a home loan,” and effectively the monthly cost of borrowing that money. As mortgage rates have gone up, monthly payments have gotten more and more pricey for people looking to purchase a home even if the base price of the house stays the same.
For example, under a 3.22 percent 30-year fixed mortgage rate in January 2022, the monthly payment on a $400,000 house in New York with a 20 percent down payment was $1,716, per a Bankrate calculator. Now, under a 7.09 percent mortgage rate in August 2023, the monthly payment on the same house with the same price would be $2,477.
Such costs have had an impact on the housing market: As mortgage rates have increased, some potential buyers have held off on purchasing houses, while sellers have similarly been less likely to list their property. For current homeowners, there’s a major incentive to wait until rates go down before deciding to re-enter the market and search for their next house.
“These higher mortgage costs are a tremendous barrier to entry for anyone wanting to enter the housing market,” Gregory Daco, the chief economist for Ernst & Young, tells Vox.
Here’s what you need to know about the higher mortgage rates and how they affect you, whether you’re looking to buy a home or sell one.
How did mortgage rates get so high?
One of the biggest factors in the rise in mortgage rates is the Fed’s approach to fiscal policy, which includes interest rate hikes aimed at combating inflation. Typically, mortgage rates “track the yield on the 10-year Treasury note” and don’t directly reflect interest rate increases. An uptick in the interest…
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