What a 7% Mortgage Rate Really Means for Your Monthly Payment
The U.S. long-term mortgage rate jumped to 7.08% this week, according to the Federal Home Mortgage Corporation (also known as Freddie Mac). That’s up 0.14 percentage points from a week earlier and marks the first time the mortgage rate has risen above 7% in more than two decades .
If you can believe it, this is another result of the country’s monstrously high inflation . And the higher the mortgage rate, the lower the purchasing power of home buyers, which affects how much home you can afford and how high your monthly payments will be. Here’s what the new 7% interest rate really means in terms of your monthly payment.
What does this interest rate actually look like?
We know that your mortgage rate makes a huge difference to whether you can afford your monthly payments. As ABC News explains , these rates (combined with higher home prices) mean that mortgage payments have risen by hundreds of dollars. But what does this 7% interest rate look like to you in practical terms?
Here is a specific example. Let’s say you bought a house for $350,000, which is roughly the “typical” – not average, but typical – cost of a home in the US this year, according to the Zillow Home Value Index .
You made a 20% down payment of $70,000 and ended up with an initial loan balance of $280,000. Excluding taxes, insurance, or HOA fees, you will have the following monthly payments based on a $280,000 fixed-rate mortgage for 30 years:
- At an interest rate of 3% = $1,180 in monthly payments.
- At an interest rate of 4% = $1,337 in monthly payments.
- At an interest rate of 6% = $1,679 in monthly payments.
- At an interest rate of 7% = $1,863 in monthly payments.
- At an interest rate of 8% = $2,055 in monthly payments.
Money.com also provides some examples of what different interest rates turn into in the form of money in your bank account.
Other Factors Affecting Your Monthly Payments
Don’t forget that a lot of factors affect your monthly payments besides the interest rate. Here are some examples from Money.com :
- The term of your loan
- Do you have a fixed or adjustable rate mortgage
- Taxes, HOA fees and insurance
- Mortgage insurance ( which we explain here)
- Financing closing expenses with your loan
To find out how much this higher rate will affect your monthly payments, you can experiment with an online mortgage calculator .