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The average long-term mortgage rate in the United States last week exceeded 7% for the first time in more than two decades. This is a result of aggressive rate hikes by the Federal Reserve System, designed to tame stubbornly high inflation in the country.
Mortgage buyer Freddie Mac reported that the average key rate on 30-year loans jumped to 7.08% from 6.94% last week. Last year, the rates on a 30-year mortgage averaged 3.14% at this time.
The last time the average exceeded 7% was in April 2002, when the US was still recovering from the terrorist attacks of September 11, but six years before the collapse of the housing market in 2008, which triggered the Great Recession.
A few percentage points may not seem as a big deal, but they become impressive when it comes to a loan of several hundred thousand dollars. For example, an increase in the rate from 3% to 7% will for a mortgage of $300,000 means that the average monthly payment has increased from $1,265 to $1,996. That's a huge difference.
The monthly payment for a house at an average price is now 78% higher than a year ago for buyers who can make a 20% down payment. According to Realtor.com, this means an increase in the typical household payment by $1,000 in the last year alone.
To cope with the situation, some home buyers choose adjustable-rate mortgages that do not make it easier to obtain financing but offer lower monthly payments in the first few years of the loan term.
Source: Hurriyet Daily News
Photo: Unsplash (Matthew Daniels)
