What the Fed’s interest rate hike means for mortgages

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The rapid rise in mortgage rates means home buyers will need to pay significantly more for a home loan compared to even just eight months ago.

In November, a 30-year fixed-rate mortgage, the most popular home loan product, was barely 3 percent. As the rate approaches 6 percent, the added cost to a 30-year mortgage is hundreds of thousands of dollars.

How higher interest rates increase the cost of a

30-year home loan

6% rate

3% rate

Cost of a 30-year mortgage over time on a:

$250,000

home

$500,000

home

$863K

$256k

more

750K

$607K

500K

$432K

$128K

more

250K

$304K

0

0 years

30

0 years

30

$750,000

home

$1.3M

1.25M

$384K

more

1M

$911K

750K

500K

250K

0

Note: Assumes a 20 percent down payment. These calculations exclude other costs like property taxes and HOA fees.

How higher interest rates increase the cost of a 30-year home loan

6% rate

3% rate

$750,000

home

$1.3M

Cost of a 30-year

mortgage

over time

on a:

$384K

more

$500,000

home

1M

$863K

$911K

$256K

more

$250,000

home

750K

$607K

500K

500K

$432K

$128K

more

250K

$304K

0

0

0

0 years

30

0 years

30

0 years

30

Note: Assumes a 20 percent down payment. These calculations exclude other costs like property taxes and HOA fees.

How higher interest rates increase the cost of a 30-year home loan

$750,000 home

$1.3M

6% rate

3% rate

$384K

more

$500,000 home

1M

$863K

$911K

Cost of a 30-year mortgage over time on a:

$256K

more

750K

$250,000 home

$607K

$432K

500K

500K

$128K

more

$304K

0

0

0

0 years

30

0 years

30

0 years

30

Note: Assumes a 20 percent down payment. These calculations exclude other costs like property taxes and HOA fees.

How higher interest rates increase the cost of a 30-year home loan

$750,000 home

$1.3M

6% rate

3% rate

$384K

more

$500,000 home

1M

$863K

$911K

Cost of a 30-year mortgage over time on a:

$256K

more

750K

$250,000 home

$607K

$432K

500K

500K

$128K

more

$304k

0

0

0

0 years

30

0 years

30

0 years

30

Note: Assumes a 20 percent down payment. These calculations exclude other costs like property taxes and HOA fees.

A jump in rates from 3 to 6 percent causes the lifetime cost of a standard 30-year fixed-rate mortgage to increase by more than half the price of the home’s price at sale.

For a $250,000 home, the mortgage would cost $128,000 more over 30 years. That translates to a monthly mortgage bill that is $356 higher. For a home purchased at $750,000, homeowners would pay $1,067 more.

Mortgage rates have been on a rapid ascent over the past year as inflation climbs and the Federal Reserve moves to dampen it.

This week, mortgage rates had their biggest one-week jump in decades. The 30-year fixed-rate mortgage now stands at 5.78 percent, a level not seen since 2008, according to data released by Freddie Mac.

Seven ways you can financially prepare for a recession

Higher rates can be a major factor in deciding whether to buy a home and signs of a cooling housing market were already apparent this year. While Realtor.com originally forecast a 6.6 percent increase in home sales this year, the real estate listing website recently downgraded its projection to a 6.7 percent decrease in 2022 compared with the year prior.

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