The average U.S. 30-year fixed mortgage rate surged to 7.49% last week, reaching its highest level in nearly three years and delivering another blow to Americans already struggling with the cost of buying a home.

The Mortgage Bankers Association said Wednesday that the average contract rate on a 30-year fixed mortgage with a conforming loan balance jumped 19 basis points, from 7.30% to 7.49%, during the week ending Oct. 2. The rate has not been higher since November 2023.

The sharp increase immediately weighed on demand. Overall mortgage applications fell 4.2% from the previous week, dropping to their lowest level since February 2025. Applications to purchase homes declined 2%, while refinancing applications plunged 8%.

Refinancing has been hit particularly hard. Refinance applications are now 56% below their level at the same time last year and have fallen to less than half of last year’s pace, as millions of homeowners remain locked into mortgages carrying significantly lower rates.

“Mortgage rates moved to their highest level in almost three years last week, with the 30-year fixed rate reaching 7.49% as both Treasury rates increased and spreads widened with the increase in rate volatility,” said Joel Kan, the MBA’s vice president and deputy chief economist.

“Very few homeowners have an incentive to refinance at these rates, and the jump in borrowing costs has caused many potential borrowers to step back from the purchase market. With rates roughly a percentage point higher than a year ago, refinance applications last week were at the lowest level since 2025 and fell to less than half of last year’s pace.”

The latest increase marks the seventh consecutive week that mortgage rates have risen. The 30-year rate has climbed roughly 1.4 percentage points since late February, when the U.S.-Israeli military campaign against Iran began and the resulting surge in oil prices intensified inflation concerns.

Mortgage rates do not move directly with the Federal Reserve’s benchmark interest rate. Instead, they tend to track the yield on the 10-year U.S. Treasury note, which has been soaring amid concerns about inflation, elevated energy prices, stronger-than-expected economic growth and the future direction of monetary policy.

The 10-year Treasury yield climbed above 5.3% on Monday, reaching its highest level in 24 years. The 30-year Treasury yield has also surged, reaching approximately 5.7% Wednesday, its highest level since 2002.

Those moves have pushed borrowing costs higher across the economy and intensified the affordability crisis confronting prospective homebuyers, who are simultaneously dealing with home prices that remain elevated in many parts of the country.

The difference between a mortgage in the 6% range and one approaching 7.5% can translate into hundreds of dollars in additional monthly payments. On a $500,000 30-year mortgage, for example, principal and interest at 7.49% would be approximately $3,490 per month, compared with about $3,000 at 6%. That is nearly $500 more each month, before property taxes, insurance and other housing expenses are included.

The pressure is particularly acute for first-time and lower-income buyers. Applications for Federal Housing Administration purchase loans fell 6% last week, the steepest decline among the major loan categories tracked by the MBA.

“Purchase activity decreased across all loan types with FHA purchase applications falling the most, declining 6%, as these higher rates add to ongoing affordability challenges for many homebuyers,” Kan said.

As fixed mortgage rates have risen, more borrowers have turned to adjustable-rate mortgages in an effort to secure lower initial payments. Adjustable-rate loans accounted for 10.3% of total mortgage applications last week.

Other mortgage products also became more expensive. The average rate for a 15-year fixed mortgage climbed from 6.56% to 6.71%, while the average FHA-backed 30-year mortgage increased from 6.97% to 7.14%. Jumbo 30-year mortgage rates rose from 7.27% to 7.39%.

One exception was the average rate on a 5/1 adjustable-rate mortgage, which edged down from 6.47% to 6.43%.

The renewed mortgage-rate surge comes as inflation has again become a major concern for policymakers. Inflation measured by the Federal Reserve’s preferred gauge was running at 3.4% in August, well above the central bank’s 2% target.

Federal Reserve officials raised their benchmark rate in September and have indicated that another increase could come before the end of the year, although financial markets currently expect policymakers to leave rates unchanged at their meeting later this month.

President Donald Trump addressed the mortgage-rate surge Wednesday, again arguing that interest rates should be lower. Trump praised Federal Reserve Chairman Kevin Warsh but said other members of the Fed board “would like to see the country do badly, in my opinion, because I think interest rates should come down.”

Treasury Secretary Scott Bessent attributed much of the recent inflation and rate pressure to the surge in energy prices associated with the Iran conflict, predicting that borrowing costs could ease once those pressures subside.

“So once we get on the other side of this Iran conflict, (the) energy market is going to be well supplied, and we will move down towards the Fed’s target and mortgage rates and the 10-year will come back down,” Bessent said.

{Matzav.com}