Why US 30-year mortgage rate hits highest in nearly three years

The interest rate on the most common US home loan has climbed to its highest level in nearly three years, adding to affordability pressures for homebuyers and raising fresh concerns about the health of the US housing market.

The average rate on a 30-year fixed-rate mortgage rose 19 basis points to 7.49 per cent in the week ended October 2, according to data released by the Mortgage Bankers Association (MBA) on Wednesday. The rate was last higher in November 2023.

The latest increase comes as borrowing costs across financial markets have risen sharply. Mortgage rates tend to closely track the yield on 10-year US Treasury notes, which surged above 5.3 per cent earlier this week to its highest level in 24 years.

Why are US mortgage rates rising?

A combination of inflation concerns, higher oil prices and expectations around Federal Reserve policy has pushed Treasury yields higher, putting upward pressure on mortgage rates.

Oil prices have risen amid concerns about energy supplies linked to the Iran conflict. Higher energy costs can feed into broader inflation, making investors less confident that inflation will return quickly to the Federal Reserve’s 2 per cent target.

US inflation was running at 3.4 per cent in August, significantly above the Fed’s target. The prospect of persistent inflation has also raised expectations that the central bank could keep interest rates higher for longer.

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Fed policymakers have signalled that they expect to follow their September interest-rate increase with another hike before the end of the year. Financial markets, however, are currently pricing in no rate increase at the Fed’s policy meeting later this month.

Mortgage rates have already risen significantly this year. US home borrowing costs are up about 1.4 percentage points since joint US-Israeli strikes against Iran began in late February, broadly tracking the rise in the 10-year Treasury yield.

The sharp increase in mortgage rates is already affecting demand for home loans. Overall US mortgage applications fell 4.2 per cent last week from the previous week, according to the MBA, with refinancing applications declining sharply.

Application volumes are now at their lowest level since February 2025 and have fallen by nearly 50 per cent since January.

Higher rates are particularly significant for prospective homebuyers because even a relatively small increase in mortgage rates can substantially raise monthly payments over the life of a 30-year loan.

“Very few homeowners have an incentive to refinance at these rates, and the jump in borrowing costs has caused many potential borrowers to step back from the purchase market,” said Joel Kan, the MBA’s deputy chief economist.

The latest increase therefore comes at a difficult time for the US housing market, where high property prices and elevated borrowing costs are already limiting affordability.

The direction of mortgage rates will depend heavily on inflation, oil prices, Treasury yields and the Federal Reserve’s interest-rate path.

US Treasury Secretary Scott Bessent said higher oil prices were contributing to inflation and elevated mortgage rates, arguing that borrowing costs could decline once the energy shock eases.

President Donald Trump has also called for lower interest rates, while criticising the Federal Reserve’s policy stance.

For now, however, higher Treasury yields and persistent inflation are keeping pressure on mortgage rates. Unless yields retreat significantly or inflation shows a sustained decline, US homebuyers are likely to continue facing borrowing costs close to multi-year highs.