On September 17, the CFPB published a
data spotlight examining the impact of mortgage interest rates on housing affordability. Mortgage rates significantly rose from 2.65 percent in January 2021 to a high of 7.79 percent in October 2023. They have since declined to around 6.2 percent in September 2024. This escalation in interest rates has substantially increased mortgage payments, with the periodic payment on a $400,000 loan rising by over $1,200 per month. Rising home prices have compounded affordability challenges, leading the typical household to allocate about 36 percent of their monthly income to mortgage payments for a median-priced home.
The surge in interest rates was largely attributed to policy responses to post-pandemic inflation and the Fed’s retreat from purchasing mortgage-backed securities. Despite a slight decline in interest rates, housing affordability remains a challenge. For instance, the principal and interest payment for a median-priced home jumped 78 percent to $2,891 in October 2023 as compared to January 2021.
Currently, around 60 percent of all mortgages have interest rates below 4 percent. As interest rates fall, millions of borrowers could refinance more affordable payments. For example, the CFPB noted how a reduction from 7.25 percent to 6.5 percent could save a mortgage-payer $200 monthly on a $400,000 loan. The CFPB expressed its intention to continue monitoring refinancing activity and industry practices, with a purported focus on streamlining the process and minimizing closing costs to enhance consumer benefits.
