Mortgage rates are the highest they have been in almost three years, and Metro Phoenix buyers feel it in the monthly payment before they feel it anywhere else. Freddie Mac's weekly survey had the 30-year fixed at 7.28% on October 1. A year earlier it was 6.34%. That is not a rounding error. On a normal Scottsdale-sized loan it is a car payment's worth of difference, every month, for as long as you hold the loan.

What 7.28% costs compared with a year ago

On a $400,000 loan, the move from 6.34% to 7.28% adds about $251 a month in principal and interest. The loan amount did not change and neither did the house. Only the price of the money did.

Add Arizona property taxes, homeowners insurance, and any HOA dues, and the full payment is higher still. Our post on Arizona property taxes for homebuyers shows how much to budget on top of the loan payment.

Rates did not make homes more expensive. They made the same home cost $251 more a month.

How much buying power you lost

The same $2,486 payment that bought a $400,000 loan at 6.34% buys only about $363,000 at 7.28%. That is roughly $37,000 of purchasing power gone, and it is the number I would care about more than the rate itself. If you were pre-approved last fall or this spring, your approval amount is probably smaller today, and it is worth a fresh look before you write an offer.

The usual rule of thumb is that a lender wants your housing payment near 28% of gross income. At that yardstick, a $2,737 payment needs about $117,000 a year in income, versus about $107,000 at 6.34%. Real approvals use total debt, not just housing, so run your own file. Our guide on how much house you can afford in Arizona walks through the full math.

Why rates are climbing

Mortgage rates follow long-term bond yields, and bond yields have jumped. The 10-year Treasury moved above 5% on inflation worries and a global selloff in government debt, and the Federal Reserve raised its benchmark rate in September. Lenders price loans off that bond market, not off the Fed's headline decision directly. We explained that gap in the mortgage rate and Treasury spread post, and the forward-looking side in will mortgage rates hit 8%.

Nobody I trust can tell you where yields go next. I will not pretend to either. What I can tell you is how to protect a payment when the market is not doing you any favors.

Run your own numbers

Five ways to lower the payment without waiting

You cannot control the bond market. You can control the structure of your loan, and in a rising rate month that is where the money is.

• Ask the seller to fund a buydown. In today's Phoenix market, sellers often say yes to concessions before they say yes to a price cut. We compare the options in seller-paid rate buydowns in Arizona.
• Consider an adjustable rate. A 7-year or 10-year ARM usually starts below the fixed rate. It only makes sense if you know your timeline, and our post on adjustable rate mortgages in Arizona covers the caps.
• Add a float-down. If rates fall after you lock, a float-down lets you capture part of it. The terms are in our guide to mortgage rate float-downs.
• Raise the down payment or shop programs. Mortgage insurance and pricing change at 5, 10, and 20% down. Look through our loan programs before you assume conventional is cheapest.
• Plan to refinance, but do not count on it. A rate drop later can help, and the closing costs still have to pay for themselves.

The Consumer Financial Protection Bureau's home buying guide is a solid primary source for comparing Loan Estimates, and the Federal Housing Finance Agency publishes the national house price data behind the affordability numbers. Compare at least three quotes on the same day, because pricing moves between Monday and Friday.

A worked example: is a point worth buying?

Maybe. It depends entirely on how long you keep the loan. Say one discount point costs 1% of the loan, or $4,000 on $400,000, and trims the rate by about a quarter point, from 7.28% to roughly 7.03%. That saves about $68 a month. Divide $4,000 by $68 and you get roughly 59 months to break even, a little under five years.

If you will hold the loan longer than that, the point pays you back. If you expect to sell or refinance in three years, it does not. Those numbers are illustrations, because every lender prices points differently, which is why I ask for several quotes. In a market where many buyers expect rates to fall, the break-even is the whole question. Buy the point only if you would be happy to keep the loan past that date.

When to lock

Lock when you are under contract and the payment works. A lock typically runs 30 to 60 days, and a longer lock costs a little more. If you are still house hunting, you do not need to lock yet, but you do need a clear number you can live with. Decide the highest payment you will accept before you shop, write it down, and stick to it. Buyers who skip that step tend to chase the rate day by day and make worse decisions than buyers who set a ceiling.

What it means for Phoenix and Scottsdale buyers

Higher rates have cooled demand across the Valley, and cooler demand gives you leverage. Listings sit longer, sellers are more willing to negotiate, and builders keep offering incentives to move inventory. The Homes.com Phoenix housing market report tracks days on market and price changes if you want to watch it yourself. When the market gives you negotiating room but the lender takes some of it back through rate, the answer is to spend your leverage on the loan. Ask for the concession that cuts the payment most, not the one that sounds biggest.

You can see what is on the market now at Arizona Luxury Property Search, then bring a short list to us. Our team can show you how each home's payment changes at 7.28%, and our process explains how a file moves from first call to keys.

Meet the Pillar Mortgage Group team, start at pillarmortgagegroup.com, book a call, or use the form below, and we will price your purchase at today's rates.

Frequently asked questions