If you’ve scanned the headlines recently, you’ve probably seen that mortgage rates have risen again.
They did this despite the Federal Reserve’s recent interest rate cut, which left many people puzzled.
I’ve already touched on that strange relationship, but today I wanted to talk about actual numbers.
Yes, mortgage rates jumped over 7% again this week, and yes, they rose by a whopping 25 basis points (0.25%).
But how does this affect your typical monthly mortgage payment? You might be surprised.
Mortgage rates rose again to the seven level this week
It’s no secret that this week has been tough for mortgage rates.
They were actually trending lower after Thanksgiving and into early December before bouncing back on Wednesday.
The 30-year fixed rate approached 6.625% before suddenly turning to 7.125%.
What prompted the move was a new dot-matrix chart from the Fed, which detailed smaller interest rate cuts in 2025.
Fed Chair Powell also noted that inflation was more steady than originally thought in September, and that unemployment was not too bad.
Translation: The economy is performing better than expected, so additional interest rate cuts may not be necessary.
High inflation could rear its ugly head again if economic growth continues at a hotter pace.
Naturally, this flip-flop is very common in all financial markets. This is why you see stocks going up one day and down the next. Then rinse and repeat.
New economic data is released almost daily, all of which can affect the direction of mortgage rates.
Therefore, what was said a few days ago may be matched by new information released today. Speaking of the Fed’s preferred measure of inflation, PCE reportIt came in colder than expected.
As such, the 10-year bond yield (which correlates well with mortgage rates) fell below 4.50.
This means that mortgage rates will fall today and reverse some of those painful increases we have seen since Wednesday.
But even so, how much of a difference does a quarter-point increase in the mortgage rate make?
Let’s take a look at the difference in price when purchasing a typical home
Since Wednesday, mortgage rates have risen 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 report. National Association of Realtors.
If we assume the buyer comes with a 10% down payment, which is typical for first-time homebuyers these days, the loan amount would be $365,400.
Now let’s compare the principal and interest portion of the monthly payment based on different mortgage rates.
6.875%: $2,400.42
7.125%: $2,461.77
Despite the big jump in the interest rate this week, your typical FTHB card will only get you another $60 each month.
It doesn’t seem like a material amount of money for your monthly mortgage payment. Sure, it’s higher, but not by much.
Even the full half-point difference, at a rate of 6.625% versus 7.125%, would only be about $120 a month.
Yes, there’s still more money, but again, $120. We all know that $120 isn’t a lot of money these days, and it may simply amount to a meal with the family.
If a small change in your mortgage rate makes or breaks you, it probably wasn’t the right thing to start with
Now there are more costs that go into buying a home beyond the mortgage itself. There are property taxes, which have increased a lot in recent years, especially in some states.
There is homeowners insurance, whose prices have also increased as insurance companies raise premiums due to increased risks associated with climate challenges.
Finally, there is the change in home prices, which have also risen significantly over the past few years.
But these high costs are all pretty old news at this point. The only thing that really changed this week were mortgage rates.
And if you’re weighing whether to buy a home, a 0.25% rate difference shouldn’t make or break this decision.
If that happens, it may not have been the right decision to begin with. Renting may be better 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 basically a 2.5% increase in monthly spending, which is negligible.
However, I understand that it may be a psychological blow to see mortgage rates rise again. When they struggle with all the other expenses, it can push people over the edge.
However, if you’re in the market to buy a home, and can’t stomach a quarter to half point increase in price, that might indicate that this isn’t the right move.
Read on: Mortgage rate forecasts for 2025
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