Mortgage rates rise to 7.40%, a seventh straight weekly gain, and lenders widened their margin

The average 30-year fixed mortgage rate rose to 7.40% this week from 7.28% a week earlier, Freddie Mac reported on Thursday. The 15-year fixed rate rose to 6.73% from 6.60%. A year ago the 30-year averaged 6.30%, according to Freddie Mac's weekly history, and Realtor.com described it as a new three-year high.

It is the seventh consecutive weekly increase. The 30-year average was 6.65% on Aug. 20 and has risen every week since: 6.66%, 6.71%, 6.76%, 6.95%, 7.03%, 7.28%, 7.40%. That is 75 basis points in seven weeks. Last week's 25-basis-point jump is covered here.

What it costs

Principal and interest on a $400,000, 30-year fixed loan, before taxes and insurance:

Against a year ago, that is $294 a month, or about $3,500 a year, for the same house and the same loan. On a 15-year loan of the same size, 6.73% means $3,535 a month, up about $29 from last week.

The number behind the number: the spread widened

Last week almost all of the increase came from the 10-year Treasury. This week it did not. Freddie Mac's survey covers applications from the prior Thursday through Wednesday. By our calculation from Treasury's daily rates, the 10-year averaged about 5.28% over Oct. 1 to 7, against about 5.23% over Sept. 24 to 30. That is a rise of roughly 5 basis points, while mortgages rose 12.

The gap between the 30-year mortgage rate and the 10-year yield therefore grew to about 2.12 points from about 2.05. In practice, lenders and investors in mortgage bonds asked for about 7 basis points more over Treasuries than a week earlier. The 10-year did not drive this week's increase. The extra margin did.

This is a one-week reading from averaged data, and a seven-basis-point change in a spread is within the range of normal noise. We would not call it a trend. But it means a drop in Treasury yields may not pass through to mortgage quotes as fully as buyers expect.

Who it hits

A buyer with a closing in November who has not locked faces the largest exposure. The 10-year closed at 5.28% on Wednesday, and Realtor.com noted that Fed officials are still signalling more increases. Each further quarter-point costs about $68 a month on a $400,000 loan.

A buyer who put 20% down on a $400,000 home borrows $320,000, and pays about $235 a month more than the same buyer would have a year ago. That is the difference a year of rising rates has made to the monthly budget.

For a small business owner buying a building or a franchise location, the mortgage rate is not the commercial rate, but it moves with the same Treasury curve. Anyone whose lender prices off the 10-year should expect today's yield, not last year's, in a term sheet. Track it on our 10-year chart.

Sources: Freddie Mac PMMS and PMMS history; U.S. Treasury daily yield curve rates; Realtor.com. Payments, yield averages and spreads are Chronicle calculations. This is market information, not investment advice.