This week the long-term U.S. mortgage rate jumped to 7.08%, according to the Federal Home Loan Mortgage Corporation (aka Freddie Mac). This is a 0.14 percentage point increase from a week earlier, making it the first time in more than two decades that the mortgage rate has been over 7%.
If you can believe it, this is another result of the nation’s brutally high inflation. And the higher the mortgage rate, the lower the homebuyers’ purchasing power, impacting how much home you can afford and how high your monthly payments will be. Here’s what the new 7% interest rate actually means in terms of your monthly payment.
What this interest rate actually looks like
We know that your mortgage rate makes a huge difference as to whether or not you can afford your monthly payments. As ABC News explains, these rates (combined with higher home prices) mean that mortgage payments are up hundreds of dollars. But what does this 7% interest rate look like for you, in as practical terms as possible?
Here’s a concrete example. Let’s say you bought a $350,000 home, which is approximately the “typical”—not average, but typical—home value in the U.S. this year, according to the Zillow Home Values Index.
You made a 20% down payment of $70,000 and end up with a starting loan balance of $280,000. Not including taxes, insurance, or HOA fees, you’d have the following monthly payments based on a $280,000 home loan with a fixed rate for 30 years:
At 3% interest rate = $1,180 in monthly payments
At 4% interest rate = $1,337 in monthly payments
At 6% interest rate = $1,679 in monthly payments
At 7% interest rate = $1,863 in monthly payments
At 8% interest rate = $2,055 in monthly payments
Money.com also breaks down some examples of what different interest rates translate to in terms of money out of your bank account.
Other factors impacting your monthly payments
Don’t forget that a variety of factors impact your monthly payments on top of the interest rate. Here are some examples from Money.com:
The length of your loan term
Whether you have a fixed vs. adjustable-rate mortgage
Taxes, HOA fees, and insurance
Mortgage insurance (which we explain here)
Financing closing costs into your loan
To find out how much this higher rate will impact your monthly payments, you can experiment with an online mortgage calculator.