Mortgage rates hit a one-year high, putting more pressure on homebuyers

Mortgage rates have climbed to their highest level in nearly a year, dealing another setback to prospective homebuyers already contending with high prices, insurance costs and property taxes.

The average rate on a 30-year fixed mortgage rose to 6.58% this week, up from 6.55% a week earlier, according to Freddie Mac. The average 15-year fixed rate increased to 5.96% from 5.93%. The 30-year rate is now at its highest level since August 2025, although it remains below the 6.74% average recorded one year ago, AP News reported.

A separate Mortgage Bankers Association survey, which measures contract rates offered to applicants, placed the average 30-year conforming mortgage rate at 6.69% for the week ending July 17. That was the highest reading in 11 months, Reuters said.

The increase threatens to reverse some of the modest improvement in housing affordability seen earlier this year.

Mortgage rates briefly moved below 6% in early 2026, raising hopes that more buyers would return to the market. Those hopes have faded as inflation concerns, rising oil prices and higher Treasury yields push borrowing costs back up.

Why mortgage rates are rising

Mortgage rates are not set directly by the Federal Reserve.

They generally move in the same direction as yields on longer-term government bonds, particularly the 10-year Treasury note. Investors demand higher bond yields when they expect stronger inflation or believe the Federal Reserve may keep interest rates elevated.

The 10-year Treasury yield recently moved above 4.7% as surging oil prices and renewed conflict in the Middle East revived fears that inflation could accelerate.

Economists surveyed by Reuters generally expected the Federal Reserve to hold its benchmark rate steady through the remainder of 2026, but many saw an increasing possibility that the central bank could raise rates if inflation worsens, according to a Reuters report.

That uncertainty is being passed directly to mortgage borrowers.

What a 6.58% mortgage costs

Small movements in mortgage rates can have a large effect on monthly payments.

On a $400,000, 30-year mortgage:

• At 6%, the principal-and-interest payment is about $2,398 a month.
• At 6.58%, the payment rises to about $2,549.
• At 6.74%, approximately the rate a year ago, the payment would be about $2,592.

The move from 6% to 6.58% adds about $151 a month, or more than $54,000 over 30 years if the loan is kept for its full term.

Those figures do not include property taxes, homeowners insurance, mortgage insurance or homeowners association fees, all of which can add substantially to the monthly cost.

High prices compound the problem

Rising interest rates are especially damaging because home prices remain near record levels.

The national median price of an existing home reached $440,600 in June, according to recent housing-market data. Although income growth had produced some improvement in affordability compared with 2025, another sustained increase in mortgage rates could erase part of that gain, according to MarketWatch.

The housing market has already been operating at historically low transaction levels. Existing-home sales remain near lows not seen in roughly three decades, as high rates discourage both buyers and potential sellers.

Many existing homeowners have mortgages carrying rates of 3% or 4%. Selling a home and buying another at more than 6.5% could increase their monthly payment dramatically, even if they purchase a similarly priced property.

That “lock-in effect” keeps homes off the market and restricts the supply available to buyers.

Builders are cutting prices and offering incentives

The rate increase is also weighing on new-home construction.

U.S. single-family housing starts declined in June, while building permits fell to their lowest level in 10 months.

Homebuilder confidence also fell in July, with the National Association of Home Builders/Wells Fargo Housing Market Index dropping to 34. Any reading below 50 indicates that more builders view conditions as poor than good.

Builders are increasingly relying on incentives to move homes. In July:

• 37% of builders reported cutting prices.
• The average price reduction was 6%.
• 63% were offering some type of sales incentive.

Incentives can include closing-cost assistance, free upgrades and mortgage-rate buydowns.

For some buyers, those incentives may make a newly built home less expensive on a monthly basis than a similarly priced existing home.

Affordability Watch: What buyers can do

Compare several lenders

Mortgage rates and fees can vary significantly among lenders, even when borrowers apply on the same day.

Buyers should request written loan estimates from at least three lenders and compare:

• Interest rate.
• Annual percentage rate.
• Origination fees.
• Discount points.
• Lender credits.
• Mortgage insurance.
• Total cash required at closing.

The lowest advertised rate is not necessarily the least expensive loan if it requires large upfront fees.

Freddie Mac research has found that obtaining additional rate quotes can produce meaningful savings over the life of a mortgage.

Ask whether discount points make sense

A discount point generally costs 1% of the mortgage amount and reduces the interest rate.

On a $400,000 mortgage, one point costs $4,000.

Points may make sense for buyers who expect to remain in the home long enough for the monthly savings to recover the upfront expense. They may not make sense for buyers who expect to move or refinance within a few years.

Calculate the break-even period before paying points:

Cost of points ÷ monthly payment savings = number of months needed to break even.

Negotiate a seller-funded buydown

In a slower market, buyers may be able to negotiate a seller credit that temporarily reduces the mortgage rate.

Under a common 2-1 buydown, the effective rate is reduced by two percentage points during the first year and one percentage point during the second year. The borrower then pays the full contractual rate beginning in year three.

Temporary buydowns lower initial payments, but buyers must qualify for — and be able to afford — the permanent payment.

Look closely at builder financing

Large homebuilders often operate affiliated mortgage companies and may offer interest rates below those available from outside lenders.

Those offers can be valuable, but buyers should compare the entire transaction. A builder could offer a lower rate while charging a higher home price or limiting other concessions.

Ask for two calculations:

1. The price and payment using the builder’s financing.
2. The price and payment using an outside lender.

Consider an adjustable-rate mortgage carefully

An adjustable-rate mortgage may offer a lower initial rate than a 30-year fixed loan.

It can be suitable for a buyer who expects to sell before the rate adjusts or who has enough financial flexibility to handle a higher payment later.

But borrowers should not assume they will be able to refinance. Home values can fall, lending standards can tighten and market rates can remain high longer than expected.

Before accepting an adjustable-rate mortgage, ask for:

• The initial rate.
• The date of the first adjustment.
• How frequently the rate can change.
• The maximum increase at each adjustment.
• The highest possible lifetime rate.
• The payment at the maximum rate.

Avoid draining emergency savings

Buyers often focus on making the largest possible down payment to reduce the mortgage.

But using every available dollar at closing can create another risk. Homes frequently require repairs, appliances, furnishings and insurance deductibles soon after purchase.

A slightly smaller down payment may be safer if it allows the buyer to retain a strong emergency fund, although a down payment below 20% may trigger mortgage-insurance costs.

What about refinancing?

The latest increase makes refinancing unattractive for most homeowners with older low-rate mortgages.

Refinancing may still make sense for borrowers who:

• Have a mortgage rate above current levels.
• Want to replace an adjustable-rate loan.
• Need to remove mortgage insurance.
• Want to shorten the repayment term.
• Can recover closing costs within a reasonable period.

Borrowers should compare the total cost of refinancing with the expected monthly savings rather than focusing only on the new interest rate.

A refinance that saves $150 a month but costs $6,000 would take 40 months to break even.

Should buyers wait?

Waiting for rates to fall can be sensible if the current payment would strain the household budget.

But predicting rates is difficult. Lower mortgage rates can bring more buyers into the market, producing bidding wars and higher home prices.

A buyer who finds an affordable home and expects to remain there for several years may decide to proceed and refinance later if rates decline. That strategy works only when the buyer can comfortably afford today’s payment without relying on a future refinancing opportunity.

The safest rule is simple: Buy based on the payment available now, not the rate you hope will be available later.

The bottom line

Mortgage rates have returned to their highest level in nearly a year, and there is no guarantee that relief is coming soon.

For buyers, the rate increase means less purchasing power and a higher monthly payment. But a difficult market can also create negotiating opportunities, particularly with builders and sellers whose properties have been sitting unsold.

The best defense is to compare multiple lenders, evaluate incentives carefully and set a payment limit before making an offer.

A home may be negotiable. The household budget is not.