What the Fed's interest rate hike means for mortgages

What the Fed’s interest rate hike means for mortgages

The rapid rise in mortgage rates means home buyers will need to pay significantly more for a home loan compared to even just eight months ago.

In November, a 30-year fixed-rate mortgage, the most popular home loan product, was barely 3 percent. As the rate approaches 6 percent, the added cost to a 30-year mortgage is hundreds of thousands of dollars.

A jump in rates from 3 to 6 percent causes the lifetime cost of a standard 30-year fixed-rate mortgage to increase by more than half the price of the home’s price at sale.

For a $250,000 home, the mortgage would cost $128,000 more over 30 years. That translates to a monthly mortgage bill that is $356 higher. For a home purchased at $750,000, homeowners would pay $1,067 more.

This week, mortgage rates had their biggest one-week jump in decades. The 30-year fixed-rate mortgage now stands at 5.78 percent, a level not seen since 2008, according to data released by Freddie Mac.

Higher rates can be a major factor in deciding whether to buy a home and signs of a cooling housing market were already apparent this year. While Realtor.com originally forecast a 6.6 percent increase in home sales this year, the real estate listing website recently downgraded its projection to a 6.7 percent decrease in 2022 compared with the prior year.

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