Mortgage prices have skyrocketed in the US.
Last week, the country’s average long-term mortgage rate topped 7% for the first time in more than two decades.
What happened? The average long-term mortgage rate in the USA topped 7% last week for the first time in more than two decades. This was the result of an aggressive rate hike by the Federal Reserve System to curb the country’s stubbornly high inflation.
Numbers. Mortgage buyer Freddie Mac said the average key rate on 30-year loans jumped to 7.08% from 6.94% last week. Last year at this time, 30-year mortgage rates averaged 3.14%.
The last time the average index was above 7% was in April 2002, when the US was still reeling from the September 9 terrorist attacks, but six years before the 2008 housing crash that triggered the Great Recession.
Example. A few percentage points may not seem like much, but they are really impressive when it comes to a loan of several hundred thousand dollars. For example, an increase in the rate from 3% to 7% on a $300,000 mortgage would mean 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 pay a 20% down payment. According to Realtor.com, this means a $1,000 increase in the typical household payment in the last year alone.
Solution. To cope with this, some homebuyers are opting for adjustable-rate mortgages, which do not make it easier to get financing but offer lower monthly payments in the first few years of the loan term.
Do you think the increase in mortgage prices is a good solution? Write in the comments.