The latest jump in mortgage rates is changing the math for home shoppers.
The 30-year fixed-rate mortgage averaged 7.03% on Sept. 24—the first time since January 2025 that Freddie Mac’s weekly measure has averaged above 7%.
Lawrence Yun, chief economist at the National Association of REALTORS®, has recently called 7% rates “the new normal,” at least until economic pressures ease.
“There is a direct financial implication of higher rates, but crossing the 7% barrier also has a psychological impact,” says Lisa Sturtevant, chief economist at Bright MLS. A mortgage rate increase from 6.5% to 7% adds more than $125 to the typical monthly payment on the median-priced home in the U.S., she says.
“Higher financing costs will force some buyers to compromise on their location or consider a smaller home,” Sturtevant says. “But other buyers are going to simply sit out the market this fall.”
Some buyers are finding ways to still push ahead, looking beyond the 30-year fixed-rate mortgage or taking advantage of recent incentives.
Related: Rate-Hike Shock? Here’s How Buyers Can Budget For It
ARMs Grow in Popularity
Some buyers are turning to adjustable-rate mortgages, which typically offer a lower initial rate for a set period, such as five or 10 years, in exchange for the possibility of future rate adjustments.
The share of applications for ARMs jumped to nearly 10% last week as the 30-year fixed-rate mortgage rose above 7%, according to the Mortgage Bankers Association.
“With fixed rates much higher, more borrowers opted for ARMs,” says Mike Fratantoni, MBA’s chief economist. Rates for 5/1 ARMs—which lock in the interest rate for five years before adjusting—were more than a percentage point below fixed-rate loans, he says.
Mortgage News Daily, which tracks lender rates daily, showed the 30-year fixed-rate at 7.26% on Sept. 24, compared with 6.76% for a 7/6 SOFR ARM. A 7/6 ARM has a fixed rate for the first seven years, after which the rate can adjust every six months.
Jack Mullen, managing director and private wealth adviser at Merrill Private Wealth Management, says he’s seeing more interest in ARMs, particularly among buyers who don’t expect to live in the same home for decades. The shorter-term approach can make sense for buyers who expect to move before the ARM’s initial fixed period ends, Mullen says.
“Where it could go wrong … is if interest rates go up,” Mullen says. Borrowers who keep the home after the fixed period expires could face higher payments if rates rise and may want to refinance before then into a fixed-rate mortgage.
Builders Offer Another Way to Lower Payments
Buyers aren’t only looking to alternative loan products. More builders are offering financial incentives to help offset higher mortgage costs and attract buyers to new-home construction.
In September, 66% of builders reported using sales incentives, up from 63% in August, according to the National Association of Home Builders’ surveys. More than a third also reported cutting prices, with the average reduction holding at 6%.
Mortgage rate buydowns, closing cost assistance and other concessions can help reduce buyers’ costs, either temporarily or for the life of the loan.
Lennar, for example, recently advertised promotional mortgage rates below current fixed rates in several markets. In Huntsville, Ala., the builder recently offered a 3.99% FHA 5/1 ARM on select homes, with the rate fixed for the first five years before adjusting annually beginning in year six.
Homebuilding giant D.R. Horton said in a recent earnings call that they would continue to use mortgage rate buydowns, generally offering rates at least one percentage point below prevailing market rates, with many buydowns even permanently reducing the mortgage rate for the life of the loan.
Getting Mortgage-Ready Can Help
Shopping around also may help borrowers secure a lower mortgage rate. Rates can vary among lenders, making it worthwhile to compare multiple loan offers than accepting the first one.
A newly released LendingTree analysis found that borrowers who secured the lowest mortgage rates between January and June had an average APR of 5.52%, compared with 6.15% for other borrowers—a 0.63 percentage point difference. On a $300,000 mortgage, that translated to about $121 in monthly savings.
Related: 6 Ways Your Buyers Can Save on Their Mortgage
The LendingTree analysis found that borrowers receiving the lowest rates had a mean credit score of 755 and 97% received at least three lender offers.
“The lowest rates typically aren’t the result of one financial magic trick,” says Matt Schulz, LendingTree’s chief consumer finance analyst. “These borrowers tend to arrive with stronger credit, bigger down payments and more options. … The best mortgage rates generally go to borrowers who give lenders the fewest reasons to worry.”
