US mortgage rates have risen for six straight weeks as Treasury yields climb, inflation stays elevated and expectations of further Fed rate hikes grow
US homebuyers are facing their highest mortgage rates in nearly three years after the average rate on a 30-year fixed loan jumped to 7.28 per cent this week, as rising Treasury yields and persistent inflation push up borrowing costs.
The rate rose from 7.03 per cent a week earlier, according to Freddie Mac data. It was the biggest weekly increase in about four years and the sixth consecutive weekly rise. The 30-year rate is now at its highest level since November 2023.
The average rate on a 15-year fixed mortgage also climbed to 6.60 per cent, Freddie Mac said.
Why US mortgage rates are rising
The latest jump has been driven by a sharp rise in government bond yields.
Mortgage rates tend to track the 10-year US Treasury yield, which has climbed as investors assess stronger economic growth, persistent inflation and higher government spending.
The US economy grew more strongly than previously estimated in the first half of the year. That has reduced expectations of an imminent slowdown and added to concerns that inflation could remain elevated.
Inflation is still more than one percentage point above the Federal Reserve’s 2 per cent target, according to Reuters.
More from BusinessThe Fed has already raised its benchmark interest rate this year. Investors expect at least one more increase as policymakers seek to bring inflation back towards the central bank’s target.
The relationship between the Fed and mortgage rates is not direct. The federal funds rate mainly affects short-term borrowing costs, while 30-year mortgage rates are more closely linked to longer-term bond yields and mortgage-backed securities.
But expectations about future Fed policy can influence those longer-term yields.
How the Iran war is affecting housing costs
The rise in mortgage rates has also come amid the economic fallout from the war involving the US, Israel and Iran.
The conflict has pushed global energy prices higher, adding to inflationary pressure. According to Reuters, the 30-year mortgage rate has increased by more than 1.2 percentage points in the seven months since the military action began.
Higher energy costs can feed into prices across the economy, including transportation, manufacturing and household expenses.
That creates a difficult environment for the Federal Reserve. If energy prices keep inflation elevated, policymakers have less room to reduce interest rates and may instead keep borrowing costs higher for longer.
Homebuyers are already feeling the pressure
Higher mortgage rates are weakening demand from prospective buyers.
The Mortgage Bankers Association has reported another decline in mortgage application volumes as borrowing costs have risen. MBA President and CEO Bob Broeksmit said affordability and borrower demand had weakened as higher rates continued to pressure prospective buyers and homeowners seeking to refinance.
The impact is also visible in the new-home market.
The National Association of Home Builders said builder confidence fell three points to 32 in September. The measure of current sales conditions fell to 35, while expectations for sales over the next six months dropped to 37.
Builders are responding with discounts and other incentives.
In September, 66 per cent of builders reported offering sales incentives, up from 63 per cent in August. The share was the highest since December. Meanwhile, 38 per cent of builders cut prices, with the average reduction at 6 per cent.
That could give some buyers more negotiating power even as mortgage rates remain high.
Some borrowers are turning to different loans
The 30-year fixed mortgage remains the most popular option because it provides predictable monthly payments. But buyers looking for lower initial rates have other choices.
Adjustable-rate mortgages, or ARMs, are becoming more popular. According to MBA Deputy Chief Economist Joel Kan, ARM rates were about 80 basis points below fixed-rate loans in the latest data.
ARMs accounted for 10.3 per cent of mortgage applications, the highest share since October 2025.
The lower initial rate comes with greater risk. An ARM generally has a fixed rate for five, seven or 10 years before the rate can adjust. If market rates are higher when that period ends, the borrower’s monthly payment can rise sharply.
Another option is an assumable mortgage, where a buyer takes over the seller’s existing home loan.
Some government-backed mortgages, including eligible Federal Housing Administration, Department of Veterans Affairs and Department of Agriculture loans, can be assumable.
But such loans come with limitations. The buyer takes over only the remaining mortgage balance. If the home’s sale price is significantly higher than that balance, the buyer may need a large amount of cash to cover the difference.
Buyers can also pay to lower their rate
Borrowers can sometimes reduce their mortgage rate by paying more upfront.
Lenders consider factors such as credit scores, debt-to-income ratios and down payments when determining the rate offered to an individual borrower.
A permanent rate buydown can lower the interest rate for the entire mortgage term. A temporary buydown can reduce the rate for the first few years.
But the upfront cost has to be weighed against the expected savings. Spending too much on a buydown could leave buyers with less cash available for other household expenses.
Sellers and builders can also pay for a rate buydown as part of a deal.
The increasing use of such incentives reflects the pressure on the housing market. NAHB said new-home sales in August remained 2 per cent below the level a year earlier despite a monthly increase, while affordability continued to constrain demand.
What comes next
The path of US mortgage rates will depend heavily on inflation, Treasury yields and expectations for Federal Reserve policy.
If energy prices remain elevated and inflation continues to run above the Fed’s target, investors may continue to expect higher interest rates. That could keep Treasury yields and mortgage rates under pressure.
A sustained easing in inflation and a decline in longer-term bond yields could eventually bring mortgage rates down.
The latest increase does not mean every borrower will necessarily pay 7.28 per cent. Individual mortgage rates vary depending on factors including credit history, down payment, loan type and lender.
