Rising home prices are prompting more borrowers to take out supersized home loans. Borrowers are taking out the largest mortgages ever on record.

The average purchase loan size reached an all-time high of $453,000, the Mortgage Bankers Association reports. Loan sizes have continuously been hitting new record highs over recent weeks. Home prices are up by double-digit percentages compared to a year ago.

“Prospective buyers still face elevated sales prices in addition to higher mortgage rates,” says Joel Kan, an economist with the Mortgage Bankers Association. “The heavier mix of conventional applications again contributed to another record average loan size at $453,000.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances rose to 4.05% last week, MBA reports. Rises in mortgage rates are pushing mortgage applications down. Mortgage applications to buy a home dropped 1% last week compared to the previous week; volume is 7% lower than a year ago, MBA reports.

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Borrowing costs are climbing: The 30-year fixed-rate mortgage rose to a 3.92% average this week, Freddie Mac reports.

“Mortgage rates jumped again due to high inflation and stronger than expected consumer spending,” says Sam Khater, Freddie Mac’s chief economist. “The 30-year fixed-rate mortgage is nearing four percent, reaching highs we have not seen since May 2019. As rates and house prices rise, affordability has become a substantial hurdle for potential home buyers, especially as inflation threatens to place a strain on consumer budgets.”

As of now, however, the rising rates are sparking an urgency rather than a pause among house hunters, Nadia Evangelou, National Association of REALTORS®’ senior economist and director of forecasting, writes on the association’s blog. “Buyers are rushing to lock in lower rates as the outlook is for even higher mortgage rates in the following months,” she notes. Mortgage rates are still low by historical standards.

Freddie Mac reports the following national averages for mortgage rates for the week ending Feb. 17:

• 30-year fixed-rate mortgages: averaged 3.92, with an average 0.8 point, rising from last week’s 3.69% average. Last year at this time, 30-year rates averaged 2.81%.
• 15-year fixed-rate mortgages: averaged 3.15%, with an average 0.8 point, increasing from last week’s 2.93% average. A year ago, 15-year rates averaged 2.21%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.98%, with an average 0.3 point, increasing from last week’s 2.80% average. A year ago, 5-year ARMs averaged 2.77%.

Freddie Mac reports average commitment rates along with points to better reflect the total upfront cost of obtaining a mortgage.

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Maine lawmakers are weighing a proposal that could forgive up to $40,000 in student loan debt for first-time buyers in the state.

The Maine Smart Buy bill would pay off student debt of at least $5,000 over five years as long as the buyer lived in the home for that long. Buyers must meet credit score requirements and face limits on the cost of the home they purchase.

The bill would offer “an opportunity to attract and retain young people by supporting a program that increases home ownership and provides student debt relief,” testified Democratic Senate President Troy Jackson, who was in favor of the proposal. “We need people to come to Maine to help be a part of our tax base, be part of the economy. And I think this is a great way to do it.”

Student debt is a common roadblock holding back aspiring first-time home buyers. Half of the potential home buyers surveyed in 2021 say they haven’t bought yet because of student debt, according to a report by the National Association of REALTORS® and Morning Consult. Millennials are the most likely to point to student debt for delaying home ownership.

Other states have offered programs similar to Maine’s proposal in helping to relieve student debt for first-time buyers. For example, Illinois and Maryland offer “Smart Buy” programs that pay off student debt for young adults who get a mortgage in the state. There are eligibility requirements and caps that young adults must meet to participate.

Maine has created other programs to attract more home buyers. In 2006, it touted a new campaign to bring in new residents: Visit for a Week, Stay for a Lifetime. As part of the program, those who visited Maine on vacation and then moved there got their vacation expenses recouped.

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The 30-year fixed-rate mortgage reversed course this week and decreased to an average of 3.89%, Freddie Mac reports. However, with expectations of even higher inflation on the horizon, mortgage rates likely will resume their upward trek over the coming weeks, Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, notes on the association’s blog.

Despite this week’s decline, mortgage rates have risen by more than a full percentage point over the last six months, says Sam Khater, Freddie Mac’s chief economist. “Overall economic growth remains strong, but rising inflation is already impacting consumer sentiment, which has markedly declined in recent months,” Khater says. “As we enter the spring homebuying season with higher mortgage rates and continued low inventory, we expect home price growth to remain firm before cooling off later this year.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 24:

• 30-year fixed-rate mortgages: averaged 3.89%, with an average 0.8 point, dropping from last week’s 3.92% average. Last year at this time, 30-year rates averaged 2.97%.
• 15-year fixed-rate mortgages: averaged 3.14%, with an average 0.7 point, dropping slightly from last week’s 3.15% average. A year ago, rates averaged 2.34%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.98%, with an average 0.3 point, unchanged from last week. A year ago, 5-year ARMs averaged 2.99%.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront costs of obtaining the mortgage.

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Homeowners are seeing record levels of equity in their properties, and many plan to tap into some of that newfound wealth.

Mortgage holders have an average of about $185,000 in home equity, according to research from Black Knight. That amount assumes retaining a 20% stake in the property.

The options to draw money from a home are typically cash-out refinancing, home equity lines of credit, and reverse mortgages. Homeowners aged 62 and over have been using equity from their homes more often, driven mostly by cash-out refinances, according to Urban Institute research.

“As interest rates rise in the coming year, you could see folks using more second lien products … to tap some of that equity when they need it,” Karan Kaul, principal research associate at the Urban Institute’s Housing Finance Policy Center, told CNBC. “Folks already have a very low rate, and as rates rise, it’s not going to be economical for most of them to refinance.”

Kaul predicts a shift from cash-out refinances to HELOCs, which are often used to remodel a home.

But Greg McBride, chief financial analyst at Bankrate.com, says that even as more homeowners consider leveraging equity in their home, they should remember that it isn’t 2005, when equity lending policies were looser. He says lenders aren’t allowing homeowners to pull out “every last nickel of equity that you have. Just because you have home equity doesn’t mean you can borrow from it,” he told CNBC. Most lenders will require owners maintain at least 20% equity in their home.

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Buyers are getting preapproved for mortgages to better compete in a fast-paced housing market and to be mortgage-ready as soon as they are ready to make an offer. However, preapproval doesn’t lock in their mortgage rate, which can continue to rise .

Some buyers are finding that after their offer is accepted, they must stretch their budgets to afford rising mortgage rates. They face the choice of reducing their homebuying budget or taking on a higher monthly mortgage payment.

In preapproval letters, the quoted mortgage rate is referred to as a “floating” rate, which can rise and fall with the market. Typically, buyers are unable to lock in a mortgage rate until after they sign a purchase agreement to buy a home, according to The Mortgage Reports.

Mortgage rates have gone up by more than a full percentage point over the last six months. The 30-year fixed-rate mortgage averaged 3.89% last week, according to Freddie Mac. Economists largely predict rates will continue to rise throughout the year. Rates are still low by historical standards, but with rising home prices, fluctuations in mortgage rates can make a big difference in what people can afford.

Buyers should contact their lender to verify the current mortgage rate as they prepare to make an offer to make sure a home still fits their budget, The Mortgage Reports recommends. They also may want to budget for rising rates specifically. A preapproval sets the limit for what they can borrow at the quoted rate. House hunters who max out their budget on an offer may therefore face going over that limit after the mortgage rate increases.

Once a final loan application has been approved, buyers may aim to lock in rates. Rate-lock periods often last between 15 and 60 days. Lenders typically recommend that buyers lock their rate in for a period that ends after their anticipated closing dates, helping to prevent delays.

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Mortgage financing giants Fannie Mae and Freddie Mac are pledging to help increase affordable housing as they look to curb a nationwide housing shortage. The government-sponsored enterprises are offering their largest amount ever toward affordable housing, contributing $1.14 billion to the Housing Trust Fund and the Capital Magnet Fund.

The “announcement of record funding for additional housing production will help increase access to affordable, sustainable housing options,” Sandra Thompson, the FHFA’s acting director, said in an announcement.

The Department of Housing and Urban Development oversees the Housing Trust Fund and provides grants to states and other state entities to promote and preserve affordable housing and to encourage new construction of affordable housing throughout the country. The program will receive $740 million, a $29 million increase from last year.

The Capital Magnet Fund offers grants to financial institutions and nonprofit developers for community development. The fund, overseen by the Treasury Department, will receive $398 million, a $15 million increase.

Housing shortages have been a well-documented problem in the real estate industry in recent years, particularly in the affordable housing sector. The National Association of REALTORS®, partnering with the Rosen Consulting Group, published a study last year calling for a “once in a generation” response to address decades of under-investment and under-building in the housing market. Read the paper: Housing Is Critical Infrastructure: Social and Economic Benefits of Building More Housing.

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Mortgage rates in the U.S. have risen this year and are expected to continue doing so, but the conflict between Russia and Ukraine could throw a wild card into those projections.

The 30-year fixed-rate mortgage climbed by 37 basis points over the first two full weeks of February, according to Freddie Mac. But last week, as Russia invaded Ukraine, rates dropped to 3.89% for the 30-year fixed-rate mortgage.

“When global investors sense increased uncertainty, there is a ‘flight to safety’ in the U.S. Treasury bonds, which causes their prices to go up, and their yield to go down,” says Odeta Kushi, deputy chief economist at First American. “Consequently, amidst heightened uncertainty due to the worsening events in Ukraine, there is a possibility that investors flock to U.S. Treasury bonds, which may result in a temporary, short-term decline in mortgage rates.”

The Federal Reserve has announced it would be raising the its funds rate multiple times this year and says it will address this more at its next meeting, March 15 and 16. But how aggressive the Fed is with rates could change, predicts The Mortgage Reports. The Fed’s key rate does not directly affect mortgage rates but can influence them.

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