Mortgage rates near 3-year high as surging bond yields push up the cost of borrowing

Americans who need to borrow money are running into a new kind of sticker shock. Mortgage rates have climbed to their highest level in almost three years, car loans cost noticeably more than they did a few years ago, and the forces behind the increases do not appear to be easing anytime soon.

The average 30-year fixed mortgage recently sat around 7.28%. On a median-priced home, that can mean roughly $900 more a month compared with the 3% rates many buyers locked in during the pandemic. A four-year used-car loan now runs about three percentage points higher than at the start of 2022.

How the war and the bond market collide

Mortgage rates fell early this year, but they reversed course after the U.S. war with Iran rattled the bond market with fresh inflation fears. Yields on government debt, which influence nearly every kind of consumer loan, have surged to levels not seen in decades. Higher gas and diesel prices, tariffs and a rising national debt have all fed the worry.

Then in September, the Federal Reserve raised its benchmark interest rate by a quarter point, its first increase this year, and signaled that another hike was possible. A weak September jobs report has since lowered the odds of a move at the Fed's late-October meeting, but many investors still expect rates to go up again before year's end.

"If you need to borrow, boy, it's really not a good time," said John Diamond of Rice University's Baker Institute.

A family's wish list on hold

For Carrie Goldstein, who lives in a Cleveland suburb, the numbers have turned a dream into a waiting game. After a family reunion at a cousin's walkable neighborhood in Milwaukee, she and her husband set their sights on Rocky River, Ohio, a suburb with a small downtown and a walk to Lake Erie. Then they saw what a mortgage would cost.

Her 11-year-old car, with 150,000 miles, also needs replacing. "You can't go and get a car for $150 or $180 bucks anymore a month," she said.

Her experience is common. Existing-home sales in August were down about 1.2% from a year earlier, according to the National Association of Realtors, as owners who have outgrown their homes stay put rather than give up low-rate mortgages.

Who feels it most

Higher borrowing costs tend to hit hardest for first-time buyers, younger families and anyone without significant savings or home equity to fall back on. Economists note that households that already rely on credit cards or auto loans to get by are especially exposed, because those rates move quickly when the Fed and bond markets shift.

Rising rates also ripple into student loans and small-business lending. Small-business owners, including the many immigrant-owned and family-run shops on Main Streets across the country, often rely on variable-rate credit lines that reprice quickly.

What borrowers can do

Financial planners suggest shopping several lenders, since quoted rates can vary widely, and paying down variable-rate debt first. Buyers who need to move may consider adjustable-rate mortgages or seller-paid rate buydowns, but should understand the risks if rates rise further.

With the midterms less than a month away, the cost of borrowing has also become a political issue. Polls show voters rank the economy and prices as their top concern, and many blame the administration's trade and war policies for the squeeze.