Mortgage rates rose about a quarter of a percent this week. What does this actually mean? Loaner

If you’ve been reading the headlines recently, you’ve probably noticed that mortgage rates have risen again.

And they did this despite another rate cut from the Fed, which confused many people.

I’ve talked about this strange relationship before, but today I wanted to talk about real numbers.

Yes, mortgage rates increased again by over 7% this week, and yes, they increased by 25 basis points (0.25%).

But how does this affect the typical monthly mortgage payment? You might be surprised.

Mortgage rates rose into the 7s this week

It’s no secret this week has been tough for mortgage rates.

They actually tended to drop after Thanksgiving and early December before rising again on Wednesday.

The 30-year fixed rate had approached 6.625% before a sudden about-face to 7.125%.

What prompted the move is a new dot plot from the Fed, which details fewer rate cuts in 2025.

Fed Chairman Powell also indicated that inflation was higher than initially thought in September and that unemployment was not that bad.

Translation: The economy is doing better than expected, so additional rate cuts may not be necessary.

And higher inflation could still emerge if economic growth continues at a faster pace.

Of course, this about-face is very common in all financial markets. This is why you see stocks going up one day and down the next. Then rinse and repeat.

New economic data is released almost daily, and they all can impact the direction of mortgage rates.

So what was said a few days ago could be contradicted by new information released today. And speaking of the Fed’s favorite inflation gauge, the PCE reportarrived cooler than expected.

Thus, the yield on 10-year bonds (which is very well correlated with mortgage rates) has fallen below 4.50.

That means mortgage rates will fall today and reverse some of the painful increases seen since Wednesday.

But even so, how much difference does a quarter-point higher mortgage rate actually make?

Let’s look at the rate difference on a typical home purchase

Since Wednesday, mortgage rates have climbed from about 6.875% to 7.125%, or about 25 basis points (0.25%).

The median price of an existing single-family home was $406,000 in November, according to the National Association of Realtors.

If we assume a buyer comes in with a 10% down payment, which is typical for a first-time home buyer these days, the loan amount would be $365,400.

Now let’s compare the principal and interest portion of the monthly payment based on these different mortgage rates.

6.875%: $2,400.42
7.125%: $2,461.77

Despite the sharp rise in rates this week, your typical FTHB would only lose an extra $60 each month.

That doesn’t seem like a lot of money for a monthly mortgage payment. Sure, it’s higher, but not by much.

Even a half-point difference, in the case of a rate of 6.625% versus 7.125%, would only amount to about $120 per month.

Yes, even more money, but again, $120. We all know that $120 doesn’t go very far these days and might just equate to a family meal.

If a small change in the mortgage rate makes or breaks you, maybe it wasn’t a good idea to start with

Today, purchasing a home involves greater costs than the mortgage itself. There are property taxes, which have increased significantly in recent years, particularly in some states.

And there’s home insurance, whose prices have also risen as insurers have raised premiums due to increased risks from climate challenges.

Finally, there is the evolution of house prices, which have also increased significantly in recent years.

But this increase in costs is just old news for now. The only thing that really changed this week was mortgage rates.

And if you’re thinking about buying a home, a 0.25% rate difference shouldn’t make or break that decision.

If so, maybe it wasn’t the right decision to begin with. It may be better to rent than buy a house.

The point here is that an extra $60-100 a month isn’t a lot of money in the grand scheme of things when it comes to thousands of dollars.

This is essentially a 2.5% increase in monthly expenses, which is pretty negligible.

However, I understand that seeing mortgage rates rise again could have a psychological impact. And when they’re saddled with all the other expenses, it could push people over the edge.

Still, if you’re in the market to buy a home and can’t absorb a quarter-to-half-point rate increase, that may indicate it’s not the right decision.

Continue reading: Mortgage Rate Forecast for 2025