Experts warn of interest rate hike; new mortgages could cost buyers thousands more
Potential homebuyers hoping to see costs come down might be out of luck as inflation continues to push the Federal Reserve toward an interest rate hike.
Data released last week by the Labor Department shows that consumer prices rose 3.7% over the 12 months through September. That’s up from the 3.4% annual rate in August and may push the Fed to increase rates at its next meeting on Oct. 27-28.
While mortgage rates aren’t tied directly to the Fed, the 10-year Treasury yield is a benchmark for mortgage rates. When the Labor Department’s data was released last week, the Treasury yield jumped immediately. Mortgage rates were already at a three-year high of 7.4% when the data was released, according to Realtor.com.
In turn, investors raised the probability of a federal rate increase from 22% to 35%. Senior Realtor.com economist Jake Krimmel says the current data appears to foreshadow a federal rate increase, even if it doesn’t happen at the October meeting.
“Today’s numbers all but guarantee a hike by December though, while further opening the door for one or more hikes in early 2027. We are in ‘when’ not ‘if’ territory when it comes to the next Fed rate increase,” Krimmel said.
The last time the Fed increased rates was on Sept. 16, 2026, when it raised the target range by a quarter percentage point to 3.75% to 4%. In the month since, mortgage rates have climbed roughly .45 percentage points to the current 7.4% rate.
If mortgage rates were to increase at the same rate as they have over the last month following another potential federal funds rate increase, it could cost new homebuyers and certain other mortgage holders tens of thousands of dollars over the course of the mortgage.
For example, for a $300,000 30-year fixed mortgage at 6.5% interest, the monthly mortgage payment is around $1,896. At the current 7.4%, that payment is $2,077 per month, an increase of $181 per month over the 6.5% rate.
If the mortgage rate moved to 7.85%, the mortgage would cost $2,170 per month, an increase of $274 per month compared to the 6.5% rate, and $93 more per month than the 7.4% rate.
Over the course of the mortgage, buyers who lock in at 7.4% would save about $33,431 over a 7.85% loan.
Keep in mind that mortgage rates do not move in lockstep with the federal funds rate target, so even if the Fed raises rates, mortgage rates are not guaranteed to move as they have over the last month.
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It’s important to note that these examples only factor in principal and interest. Taxes, insurance, HOA fees and mortgage insurance are not included.
Others who could be impacted by a mortgage rate increase are those with adjustable-rate mortgages, homeowners with home equity lines of credit (HELOC) and homeowners looking to refinance.
Homeowners with fixed-rate mortgages are largely protected from increases when federal rates go up. However, factors such as changes in property taxes or homeowners insurance can still affect monthly payments.
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