Mortgage interest rates rise to the highest level in 16 years

Borrowing costs for home loans have hit their highest point in 16 years, with the rate on a 30-year conventional mortgage hitting 6.7% on Wednesday, according to Freddie Mac.

Mortgage rates have now more than doubled since the start of 2022. Measured by their “effective” interest rate, which takes into account the writing period of a loan and thus gives a fairer picture of costs for homebuyers, mortgage rates are now just above 7%, according to Oxford Economics.

An increase in percentage points to a mortgage rate can add up hundreds of dollars to a property’s monthly payments, depending on the size of the loan. These significantly higher costs are cooling the housing market. The number of mortgage applications fell about 14% during the last week of September, according to the Mortgage Bankers Association.

Borrowing $300,000 at 6% interest on a typical mortgage would add up to $1,800 a month including principal and interest, according to NerdWallet. Earlier this year, when interest rates hovered around 3.5%, the same loan would have equated to a monthly payment of $1,350.

House hunters in the US have been hit this year by the one-two punch of sky-high mortgage interest rates and still high house prices. The rising cost of home ownership is discouraging many aspiring buyers, who have instead chosen to continue renting.

“It’s starting to look like home sales will be crushed to the point where the only people buying homes are those who have no choice, for family or job relocation reasons,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a report.


Fewer homes for sale as mortgage rates rise

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Some relief for buyers may be on the horizon as home prices begin to fall and are likely to continue falling in some real estate markets, economists predict. Home Prices in Sacramento, CA; Salt Lake City, Utah; and Seattle, Washington, experience some of the steepest drops.

Economists expect mortgage costs to remain high as the Federal Reserve continues to raise its benchmark interest rate in an effort to cool inflation, including two more hikes by the end of the year.

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