Mortgage Rates Rise About A Quarter Percent This Week. What Does That Really Mean?
If you’ve been scanning the headlines lately, you may have noticed that mortgage rates are on the rise again.
And they did so despite another Fed rate cut, which has many people confused.
I’ve already touched on that strange relationship, but today I wanted to talk about real numbers.
Yes, mortgage rates jumped over 7% again this week, and yes, they are up 25 basis points (0.25%).
But how does that affect the monthly mortgage payment? You might be surprised.
Mortgage Rates Climbed Back into the 7s This Week
It’s no secret that this week has been tough on mortgages.
They actually trended slightly after Thanksgiving and into early December before jumping back up on Wednesday.
The 30-year fixed rate hit 6.625% before reaching 7.125%.
The impetus for the move was a new bullish plan from the Fed, which outlines several rate cuts through 2025.
Fed chairman Powell also indicated that inflation was sticking more than they initially thought in September, and that unemployment was not that bad.
Translation: the economy is performing better than expected, so further rate cuts may not be necessary.
And high inflation could rear its ugly head again if economic growth continues at a feverish pace.
Of course, these fluctuations are very common in all financial markets. That’s why you see stocks go up one day and down the next. Then rinse and repeat.
New economic data is released more and more every day, all of which can affect the understanding of loan rates.
So what was said a few days ago may be answered by the new information released today. And speaking of, the Fed’s favorite inflation gauge, the PCE report, came in cooler than expected.
As such, the 10-year bond yield (which is closely related to mortgage rates) has fallen back below 4.50.
This means that mortgage rates will drop today and reverse some of the painful increases seen since Wednesday.
But anyway, how much of a difference does a higher quarter-point mortgage rate make?
Let’s Look at the Rate Differences in a Typical Home Purchase
As of Wednesday, mortgage rates increased from about 6.875% to 7.125%, or about 25 basis points (0.25%).
The median home price for an existing single-family home was $406,000 in November, according to the National Association of Realtors.
Assuming the buyer comes with a 10% down payment, which is common for a first home buyer these days, the loan amount would be $365,400.
Now let’s compare the principal and interest monthly payment based on those different loan rates.
6.875%: $2,400.42
7.125%: $2,461.77
Despite the big rate jump this week, your regular FTHB will only come out an extra $60 each month.
It doesn’t show up as a lump sum of money each month. Sure, it’s high, but not by much.
Even the full difference of the component, in the case of the rate of 6.625% vs. 7.125%, it can only be about $ 120 per month.
Yes, it’s more money, but then again, $120. We all know $120 doesn’t go very far these days, and you can just eat out with the family.
If Small Changes in Mortgage Value Make or Break You, Maybe It Wasn’t the Right Way to Start.
Now there are additional costs that go into buying a home beyond the mortgage itself. There is a property tax, which has increased significantly in recent years, especially in certain states.
And there’s homeowner’s insurance, which has also risen in price as insurers have raised premiums due to increased risks associated with weather challenges.
Finally, there is a change in the price of the house, which has also increased significantly in the last few years.
But those rising costs are all old news now. The only thing that has really changed this week is mortgage rates.
And when you’re weighing/weighing a home purchase, a 0.25% price difference shouldn’t make or break that decision.
If it does, it probably wasn’t the right phone to start with. Maybe you’re better off renting than buying a home.
The point here is that an extra $60-100 a month isn’t a lot of money in the grand scheme of things when we’re dealing with thousands of dollars.
It’s a 2.5% increase in monthly fees, which is negligible.
However, I understand that it can be quite a psychological thing to see mortgage rates go up again. And when it struggles with all the other costs, it can push people over the edge.
However, if you’re in the market to buy a home, and you can’t absorb a quarter to half point rate hike, it may indicate that it’s not the right move.
Read on: 2025 Real Estate Price Predictions
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