Why Mortgage Interest Rates Are Rising

The recent increase marks the end of the historically low mortgage rates that homebuyers experienced after the financial crash of 2008 and 2009.

On May 4, the Federal Reserve raised its benchmark interest rate by half a percentage point in an effort to tackle the nation’s worst inflation in 40 years. It’s the Fed’s most aggressive move since 2000, reports the Associated Press.

On the same day people claimed on social networks that the 30-year mortgage rate in the United States had also reached its highest level since 2009.

THE QUESTION

Is the 30-year mortgage rate the highest since 2009?

THE SOURCES

THE ANSWER

Yes, the 30-year mortgage rate is the highest since 2009.

WHAT WE FOUND

It’s a common misconception that the Federal Reserve sets mortgage rates — but the agency influences them, Rocket Mortgage explains on its website. If the Fed raises its interest rate, banks and lenders usually raise mortgage rates soon after. On May 4, the Fed raised its key rate to a range of 0.75 to 1%.

Data from mortgage lender Freddie Mac and Bankrate show that the 30-year mortgage rate in the United States is currently at its highest level since 2009. The increase “marks the end of the historically low rates that characterized the period that followed the global financial crash of 2008”. and 2009,” says Bankrate.

Freddie Mac reports that the 30-year rate averaged 5.27% for the week ending May 5, down from 5.10% the previous week. Freddie Mac’s rates have historically trended slightly lower than Bankrate, which reports, based on its national survey of major lenders, that mortgage rates climbed to 5.38% from 5.22% in the week. previous.

If you were to buy a house for $400,000 with a 10% down payment and a 3% interest rate, your monthly payment would be approximately $1,500, not including home insurance and taxes. land. In the same scenario with an interest rate of 5%, your mortgage would probably be over $1,900 per month.

In 2009, Freddie Mac recorded the highest average 30-year mortgage rate of the year at 5.59% in the week ending June 11. The average 30-year mortgage rate for that year was 5.4%, according to data from Bankrate.

This is also a marked increase from the 30-year rate recorded a year ago, with Bankrate indicating it was 3.16% and data from Freddie Mac also showing the rate hovering around 3%.

“Low interest rates were the cure for the economic recovery from the financial crisis, but the recovery was slow so rates never rose much,” said Greg McBride, chief financial analyst at Bankrate. “The rebound in the economy, and particularly inflation, in the latter stages of the pandemic has been very pronounced and we now have an environment of mortgage rates rising at the fastest pace in decades.”

Interest rates reached their highest point in history in 1981, exceeding 18% at their peak, according to data from Freddie Mac. They steadily declined throughout the 1990s and early 2000s as inflation began to subside, reports Rocket Mortgage.

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