It Costs More to Purchase a Home This Week, Thanks to Janet Yellen
Life + Money

It Costs More to Purchase a Home This Week, Thanks to Janet Yellen


Buying a home just got a little more expensive and recent Fed comments about a possible December interest rate hike are to blame.

Rates on 30-year fixed-rate mortgages, the most popular type of home loan, jumped over the past week, according to two separate surveys.

Freddie Mac, the mortgage giant, reported Thursday that the rate on those 30-year home loans leapt to 3.87 percent this week from 3.76 percent last week. Bankrate’s survey, also released Thursday, showed a similar jump and a smaller increase in the rate on 30-year jumbo loans, which are used to buy more expensive homes. Both surveys showed that rates on 15-year fixed mortgages — a common refinance option — and the five-year adjustable loan both rose from last week.

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The increases come after the Federal Reserve last week explicitly said that it would consider whether to raise the federal funds rate — a benchmark for interest rates on business and consumer loans including mortgages — at its next meeting in December. Fed Chair Janet Yellen on Wednesday echoed the statement in comments she made before Congress, calling a hike in December “a live possibility.”

Homebuyers who locked in mortgage rates this week rather than last week are probably kicking themselves. For instance, a borrower this week will be paying $12.53 a month more on a 30-year, $200,000 mortgage and will shell out $4,512.90 more in interest over the life of the loan.

That may not seem like much relative to the purchase price of the home. But consider if the borrower was able to instead invest that $12.53 in monthly savings in the S&P 500 for the next 30 years. Given the index’s 10-year average return rate of 7.67 percent, that borrower would earn $13,849 in addition to saving the $4,500 in interest.

Homebuyers who haven’t yet locked in their rates can console themselves knowing that whatever they’ll be paying is still historically low — and well below Freddie Mac’s average of 8.46 percent dating back to 1971.