If you’ve scanned the headlines lately, you probably saw that mortgage rates went up yet again.
And they did so despite another Fed rate cut, which has a lot of folks pretty confused.
I already touched on that strange relationship, but today I wanted to talk actual numbers.
Yes, mortgage rates jumped up over 7% again this week, and yes, they moved up by a sizable 25 basis points (0.25%).
But how does that affect the typical monthly mortgage payment? You might be surprised.
Mortgage Rates Climbed Back Into the 7s This Week
It’s no secret this week has been rough for mortgage rates.
They were actually trending lower post-Thanksgiving and into early December before jumping back up on Wednesday.
The 30-year fixed had approached 6.625% before an abrupt about-face to 7.125%.
What prompted the move was a new dot plot from the Fed, which detailed fewer rate cuts in 2025.
Fed chair Powell also indicated that inflation was stickier than they originally thought back in September, and that unemployment wasn’t quite so bad.
Translation: the economy is performing better than expected, so additional rate cuts might not be necessary.
And higher inflation could still rear its ugly head again if economic growth continues at a hotter clip.
Of course, this flip-flopping is super common in all financial markets. It’s why you see stocks go up one day and down the next. Then rinse and repeat.
New economic data is released pretty much daily, all of which can impact the direction of mortgage rates.
So what was said a few days ago might be countered by new information released today. And speaking of, the Fed’s preferred inflation gauge, the PCE report, came in cooler-than-expected.
As such, the 10-year bond yield (which correlates really well with mortgage rates) has fallen back below 4.50.
This means mortgage rates will come down today and reverse some of those painful increases seen since Wednesday.
But even so, how big of a difference does a mortgage rate a quarter-point higher actually make?
Let’s Look at the Difference in Rate on a Typical Home Purchase
Since Wednesday, mortgage rates climbed from around 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, per 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 those different mortgage rates.
6.875%: $2,400.42
7.125%: $2,461.77
Despite the big rate jump this week, your typical FTHB would only be out another $60 each month.
Doesn’t seem like a material amount of money for a monthly mortgage payment. Sure, it’s higher, but not by a lot.
Even a full half-point difference, in the case of a rate of 6.625% vs. 7.125%, would only be about $120 per month.
Yes, still more money, but again, $120. We all know $120 doesn’t go very far these days, and could simply amount to a meal out with the family.
If a Small Change in Mortgage Rate Makes or Breaks You, Maybe It Wasn’t Right to Begin With
Now there are more costs that go into a home purchase beyond the mortgage itself. There are property taxes, which have increased a lot in recent years, especially in certain states.
And there is homeowners insurance, which has also surged in price as insurers has lifted premiums due to increased risks related to climate challenges.
Lastly, there is the change in home price, which has also gone up considerably over the past several years.
But those rising costs are all pretty old news at this point. The only thing that really changed this week was mortgage rates.
And if you are/were weighing a home purchase, a difference in rate of 0.25% shouldn’t make or break that decision.
If it does, maybe it wasn’t the right call to begin with. Perhaps you’re better off renting than buying a home.
The point here is an additional $60-100 per month isn’t a lot of money in the grand scheme of things when we’re dealing in thousands of dollars.
It’s basically a 2.5% increase in monthly outlay, which is pretty negligible.
However, I do understand that it could be a psychological hit to see mortgage rates rise yet again. And when struggling with all other expenses, it could push folks over the edge.
Still, if you’re in the market to buy a home, and can’t absorb a quarter-to-half point increase in rate, it might indicate that it’s not the right move.
Read on: 2025 Mortgage Rate Predictions
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