It seemed inevitable that mortgage rates would rise back to 7%.
Ever since the war broke out at the end of February, the pressure was on.
The saving grace was that some sort of peace deal would come, and that it’d all be short-lived.
Fast forward seven months and things appear to be worse than ever, with crude oil prices back above $100 per barrel.
Similarly, mortgage rates are the worst they’ve been since last June and could get even worse from here.
The 7% Mortgage Rates Are Here…Again
A huge move higher for the 10-year treasury yield, which hit a fresh 52-week high, will translate to 7% mortgage rates today.
It’s being driven by the worsening situation in the Middle East that’s driving oil prices higher, along with higher inflation (the PPI report the latest to come in high).
Mortgage News Daily, which tracks rates on a daily basis, already had the 30-year fixed on the cusp yesterday, at 6.97%.
Considering the bellwether 10-year yield is up a staggering eight basis points this morning, it’s a foregone conclusion we’ll be above 7% today.
MBS prices are significantly weaker today and that means the 30-year fixed will easily climb the three basis points needed to get at/above 7%.
Chances are we could make a move well into the 7s, perhaps 7.05% or higher.
And while it’s maybe only another $50 to $100 a month on a typical mortgage payment, it’s the sentiment that’s the problem.
When prospective home buyers see the headlines that mortgage rates are back to 7%, there’s a decent chance they’ll throw in the towel.
Again, even if the monthly payment is manageable, and only another $50 per month, they might say enough is enough.
Perhaps it’s better just to hold off and see how things shake out. Especially with all the other goings on in the world, whether it’s the uncertainty of the war in the Middle East or the fragility of the wider economy.
At the same time, prospective home sellers could also be more hesitant to list their properties knowing all this.
They might think now isn’t such a great time to test the market with affordability already poor and mortgage rates back to their recent highs.
That could all result in a housing market standstill, which mind you is already trudging along at 30-year lows for home sales annually.
Mortgage Lenders Continue to Advertise 6% Mortgage Rates
While mortgage rates are arguably back above 7%, you’re going to continue to see lenders advertise rates in the 6s.
The reason is simple; a 6 looks a lot better than a 7.
But there’s a major catch. If you read the fine print, you’ll see that they’re charging mortgage discount points.
This is essentially prepaid interest that you pay upfront to lower your mortgage rate long term.
And we’re talking some hefty points, often two points to get the 30-year fixed rate down to 6.75% or 6.625%.
For example, on a $400,000 loan, two points would equate to $8,000, which needs to paid at closing and is included in your cash-to-close.
That’s a lot of money just for the opportunity to avoid a 7% mortgage rate.
You might also see lenders get more creative and offer up adjustable-rate mortgages instead of the 30-year fixed.
This too allows them to present something more palatable to home buyers in light of this unfriendly rate environment.
Again, pay attention to what you’re actually getting here so you know if it’s the right choice and if it’s suitable.
On the one hand, this could simply be a bad spell for mortgage rates but maybe close to the top.
If that’s the case, paying a lot of money upfront for a lower rate might not make sense.
Instead, you could settle for a slightly higher rate or an ARM (or a temporary buydown) and wait for the trend to be our friend again.
Keep reading: Try my mortgage rate calculator to compare 6 and 7% mortgage rates.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 20 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.
