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Mortgage rates reached 5.78 percent, the highest weekly increase since 1987.

Mortgage rates have risen to 5.78 percent.

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According to Freddie Mac, mortgage rates increased by more than half a percentage point this week due to growing inflation and a Federal Reserve interest rate hike. The gain is the highest in a single week since 1987.

"US mortgage rates"

In the week ending June 16, the 30-year fixed-rate mortgage averaged 5.78 percent, up from 5.23 percent the week before. This year, rates have jumped by more than two-and-a-half percentage points. They were at 2.93 percent on average this time last year.

“These higher rates are the result of a shift in expectations about inflation and the course of monetary policy,” said Sam Khater, Freddie Mac’s chief economist. “Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market.”

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Since January, interest rates have climbed dramatically, raising the cost of financing a home significantly.

What will my monthly mortgage payment be?

Buyers are finding homes even more unaffordable as inflation eats up a larger portion of their income and borrowing costs have eroded their purchasing power.

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According to Freddie Mac data from a year ago, a buyer who paid 20% down on a median-priced $390,000 property and financed the remainder with a 30-year, fixed-rate mortgage at an average interest rate of 2.93 percent had a monthly mortgage payment of $1,304.

With today’s average rate of 5.78 percent, a homeowner purchasing an identical house would pay $1,827 per month in principal and interest. According to Freddie Mac figures, that’s an extra $523 every month.

In response to worse-than-expected inflation numbers last week and in expectation of Federal Reserve rate hikes on Wednesday, the average mortgage rate has risen this week.

The Federal Reserve delivered on its commitment to boost rates to combat inflation by raising the interest rate goal by 75 basis points, the highest increase in three decades. And there’s no reason to believe the trend will continue. Following the decision, Fed Chairman Jerome Powell underlined the Fed’s commitment to continuing to raise rates in order to bring inflation down to the 2% target.

The Federal Reserve does not directly determine the interest rates that borrowers pay on their mortgages, but its activities have an impact on them. Mortgage rates are usually correlated with 10-year US Treasury bonds. However, the Fed’s activities on inflation have an indirect impact on mortgage rates. When investors see or expect rate hikes, they frequently sell government bonds, raising yields and, with them, mortgage rates.

The 10-year Treasury yield rose to 3.48 percent on Tuesday, the highest level in 11 years, as investors braced for a rate hike on Wednesday.

What will my mortgage payment be each month?

Inflationary rates act as a damper on the housing market, which has been moving at a breakneck pace for the past two years.

“Climbing mortgage rates continue to exert downward pressure on the housing market, driving up the cost of homeownership,” “At the grocery store, the gas pump, and in both the for-sale and rental markets, there has been little relief for American consumers.”

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