Mortgage Rates Soar to 7% Amid Fed Rate Hikes

The US Federal Reserve's interest rate hike has led to a significant increase in mortgage rates. The average 30-year fixed-rate mortgage jumped to 7.12 per cent, its highest level since May 2024. This marks a 15 basis point rise from the previous week and is the first time it has surpassed 7 per cent since January 2025.

The surge in mortgage rates has become a major concern for prospective homebuyers and the housing market as a whole. The Federal Reserve's decision to increase interest rates by a quarter of a percentage point to 3.75-4 per cent is aimed at combating inflation, but it has had an unintended consequence: higher borrowing costs.

With inflation running above the Fed's 2 per cent target for over five years and economists predicting further rate hikes, mortgage rates are expected to remain high. The yield on 10-year US Treasury notes, a key benchmark for mortgage rates, has reached nearly 5 per cent, its highest level in nearly two decades.

As a result of the rising mortgage rates, refinancing applications have declined to their lowest since February 2025, and more borrowers are opting for adjustable-rate mortgages. The shift towards ARMs is a response to the increasing cost of borrowing, which has become a major concern for homebuyers in the lead-up to the midterm elections.