The current rate indicates the average percentage at which you can take out a mortgage now and already reflects inflation forecasts. Meanwhile, for those who took out a mortgage in 2021 or earlier, paying the mortgage during rising inflation is beneficial, as incomes are also increasing.

How expensive is it to take out a mortgage now? Let's consider an example: if you take out a mortgage for $500,000 for 15 years at an annual rate of 7.77% with a down payment of $100,000, the monthly payment will be $4,194, and the total amount paid over the term will be $755,044.

Reasons and Consequences of Rising Rates

The rise in mortgage rates is driven by increasing inflation and the yield on the 10 Year US Treasury. There's a strong correlation between the yield on these 10-year bonds and mortgage rates.

This increase in rates is unlikely to lead to many borrowers being unable to afford their mortgage payments, as loans with variable rates make up less than 10% of the total. However, it is expected to significantly reduce demand for real estate. This is evident from the Mortgage Bankers Association's overall index of applications for home purchases and refinancing.

When Mortgage Rates Decrease

Inflation in the US is on the decline, boosting investor sentiment. The annual inflation rate in the US slowed down to 3.2% in October 2023, following a 3.7% rate the previous month.

Core inflation, which excludes volatile energy and food prices, also dropped unexpectedly to 4% from 4.1% a month earlier. With these figures, there's an increased likelihood that the cycle of raising the key interest rate, followed by mortgage rates in the US, might come to an end.

How to Get the Lowest Mortgage Rate

Try to make a larger down payment. If your down payment is more than 20%, you'll likely avoid the additional private mortgage insurance (PMI) cost. The average monthly cost of PMI ranges from 0.5 percent to 1.5 percent, depending on your down payment amount.

Look for loans with the lowest interest rates, but be cautious. Some loans come with extra mandatory fees (points). Always calculate the total amount of future payments to get a clear picture.

Should You Get a Mortgage Now

If you're renting or planning to rent a property with a monthly rent that's comparable to a mortgage payment, it might make sense to consider a mortgage despite the high rates. After all, once you've paid off your mortgage, you'll own your property. In contrast, after years of paying rent, you won't have acquired any real estate.

For example, the average rent for a two-bedroom apartment in New Jersey is $2,400. The average price for similar real estate in New Jersey is $495,000. If you take out a mortgage at 7% with a 20% down payment, your total monthly payment would be $3,059. This is $659 more than renting, but it leads to owning the property. For those not ready to pay the extra cost, it's better to wait for mortgage rates to fall.