Mortgage Rates Jump to 7.28%, Reaching Highest Level in Nearly Three Years

The average U.S. mortgage rate has climbed to its highest level in nearly three years, adding another layer of pressure to a housing market already struggling with affordability.

According to mortgage buyer Freddie Mac, the average rate on a 30-year fixed-rate mortgage rose to 7.28% this week, up sharply from 7.03% the previous week. The increase marks the sixth consecutive week of rising mortgage rates and the largest weekly jump in four years.

A year ago, the average 30-year mortgage rate was 6.34%.

The latest rate is the highest since November 22, 2023, when the average reached 7.29%. It also represents the fastest week-to-week increase since October 2022.

15-Year Mortgage Rates Rise as Well

Borrowers seeking shorter-term financing are also facing higher costs.

The average rate on a 15-year fixed-rate mortgage increased to 6.60%, up from 6.42% the previous week. A year ago, the average was 5.55%

Fifteen-year mortgages are often used by homeowners refinancing existing loans, but the higher rates are making refinancing less attractive for some borrowers.

Why Are Mortgage Rates Rising?

Mortgage rates are influenced by several factors, including inflation, Federal Reserve policy and expectations among bond-market investors about the economy.

They generally move alongside the 10-year U.S. Treasury yield, which lenders use as an important guide when pricing home loans.

The 10-year Treasury yield has risen significantly since late February. It stood at 3.97% before the U.S. and Israel attacked Iran, but reached 5.27% in midday trading Thursday, according to the report.

Higher oil prices have contributed to concerns about inflation, which can put upward pressure on bond yields. Rising yields, in turn, can make borrowing more expensive across the economy.

Higher Rates Are Slowing Homebuyer Activity

The latest increase comes as the housing market continues to struggle with elevated borrowing costs.

Mortgage rates began climbing sharply from pandemic-era lows in 2022, contributing to a prolonged slowdown in home sales. Existing-home sales remained near a three-decade low last year.

The National Association of Realtors (NAR) reported that existing-home sales fell 2% in August from July, reaching a seasonally adjusted annual rate of 3.98 million homes. That was the slowest annualized pace in more than a year.

Higher mortgage rates can add hundreds of dollars to a borrower’s monthly housing costs, reducing purchasing power and prompting some prospective buyers to delay their plans.

Mortgage Applications Fall for a Fourth Straight Week

Recent mortgage application data suggests that some borrowers are already pulling back.

According to the Mortgage Bankers Association (MBA), total mortgage applications fell 6% last week from the previous week. It was the fourth consecutive weekly decline.

Applications to refinance existing mortgages also decreased, reflecting the challenge facing homeowners who may have locked in substantially lower rates in previous years.

The decline suggests that rising borrowing costs are affecting both prospective buyers and homeowners considering refinancing.

More Buyers Are Considering Adjustable-Rate Mortgages

As fixed mortgage rates continue to rise, some borrowers are looking for alternatives.

According to the MBA, adjustable-rate mortgages (ARMs) accounted for more than 10% of all mortgage applications last week.

ARMs typically offer a lower initial interest rate than a traditional 30-year fixed-rate mortgage, although the rate can adjust later depending on the terms of the loan.

The increased interest in ARMs suggests that some borrowers are looking for ways to manage their initial monthly payments as fixed mortgage rates remain elevated.

Another Affordability Challenge for the Housing Market

The jump to 7.28% puts mortgage rates at a level that could further test the U.S. housing market.

For buyers, higher rates mean larger monthly payments and less purchasing power. For homeowners, they can make refinancing less appealing. And for the broader market, expensive financing can encourage potential buyers to remain on the sidelines.

With mortgage applications declining and existing-home sales already weak, the latest increase in borrowing costs creates another significant hurdle for a housing market still trying to regain momentum.