Mortgage rate rise outpaces four years of rent growth

The Federal Reserve lifted the federal funds target range to 3.75%‑4% on Sept. 16, the first hike since 2023. Mortgage rates, which follow the bond market, rose to 7.19% for a 30‑year fixed loan, and Freddie Mac’s weekly survey showed a 6.95% rate on Sept. 17, up from 6.76% a week earlier. The increase has already begun to lift borrowing costs for investors who rely on rental income to cover principal, interest, taxes, insurance and association dues.

Griffin Funding’s scenario analysis shows that on a $300,000 loan, raising the mortgage rate from 6.75% to 7.75% raises the rent needed to maintain the same debt‑coverage ratio by 8.3%. At July’s 1.8% annual single‑family rent pace, that 8.3% increase is equivalent to about 4.5 years of rent growth. The Fed’s projections now see the federal funds rate at 4.1% at the end of both 2026 and 2027, up from 3.8% and 3.6% in June’s projections.

For a $400,000 single‑family rental, the coverage ratio moves from 1.23 at 6.75% to 1.20 at 7.00% and to 1.13 at 7.75%. To reach the illustrative target of 1.25, the investor would need about $3,183 in qualifying monthly rent—$183 above the expected $3,000. Alternatively, the loan could be reduced to roughly $278,500 by adding $21,500 to the down payment, creating equity that can be used for repairs, vacancies or a second purchase.

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