ECONOMY STUDIOTake a $100,000 loan over 30 years: at 3%, the interest over the whole loan comes to $51,777; at 7%, it is $139,509; and at 7.40%, $149,2571. The rate is 2.5 times higher at 7.40% than at 3%, but the total interest is 2.9 times higher1. That is “nearly triple”.
What it does to a monthly bill
Freddie Mac’s survey put the average 30-year fixed rate at 7.40% for the week of October 15, 2026, up from 6.27% a year earlier2. It is the highest weekly rate since November 20233.
On the September 2026 median existing home, $417,500, with 20% down, a $334,000 loan costs $1,408 a month at 3% and $2,313 a month at 7.40%, which is $904 more every month4,5. Over 30 years the interest is $172,937 at 3% and $498,517 at 7.40%, a difference of $325,5815.
Where the first $100 goes
A mortgage charges interest every month on what you still owe. In month one you still owe all of it, so interest takes its share first. In the first monthly payment on a $100,000 loan, $616.67 of $692.38 is interest at 7.40%, which is 89%; at 3%, $250.00 of $421.60 is interest, 59%1. Of the first $100 you pay, $59 goes to interest at 3% and $89 at 7.40%1.
Every step up in the rate hands the lender a bigger slice of that first payment: $70 at 4%, $78 at 5%, $83 at 6% and $88 at 7%1. The share does not depend on the size of the loan1.
Each month the balance shrinks a little, so the interest shrinks and more goes to the loan. On a $100,000 loan, the principal part of the payment first exceeds the interest part in month 84, in year 7, at 3%, but only in month 249, in year 21, at 7.40%1. After 10 years of payments, $76,020 is still owed at 3%, against $86,603 at 7.40%1.
A shorter loan
A 15-year loan at Freddie Mac’s 6.71% costs $882.69 a month on $100,000 and $58,885 of interest in total, against $692.38 a month and $149,257 for the 30-year loan at 7.40%6. Principal first exceeds interest in month 57 instead of month 249, and of the first $100 paid, $63 is interest instead of $896. The catch is the monthly bill, which is about $190 higher6.
Why mortgages work this way
It feels like the only way a home loan could work, but it is young. Before the Federal Housing Administration, most home loans were balloon loans that had to be refinanced every few years, down payments could be as high as half the value of the home, and the homeownership rate in 1930 was below 50 percent7.
From 1933 to 1936, the Home Owners’ Loan Corporation bought 1,017,821 distressed mortgages and rewrote them as 15-year loans at 5% with equal payments that paid down the principal each month, a form that was still relatively unusual at the time8. The National Housing Act of June 27, 1934 then created the FHA, which insured loans paid off over 20 years at up to 80% of the home’s value, and by 1954 its loans ran 30 years9.
Where 7.40% comes from
In 2026, the monthly average of the 30-year rate rose from 6.10% in January to 6.86% in September and 7.36% in October10.
Lenders start from what the 10-year Treasury yield pays investors, which was 5.10% on October 15, and add a gap of 2.30 points, against an average of 1.77 points in matched weeks since 197111.
The headline rate is built from conventional purchase loans for borrowers with good credit who put 20% down, so it is a national average for buyers like that12.
Is 7% high?
Across 2,899 weekly readings from April 1971 to October 15, 2026, the average 30-year rate was 7.68%, the median 7.22%, and 54% of the weeks were at 7% or higher10. The highest was 18.63% in October 1981 and the lowest was 2.65% on January 7, 20213.
The 30-year rate was below 3% in only 55 of those 2,899 weeks, all of them between July 16, 2020 and November 10, 2021, about 16 months10. The window closed fast: the rate was 3.22% in the first week of 2022 and first passed 7% on October 27, 2022, at 7.08%10. From November 10, 2021 to November 10, 2022 it multiplied 2.38 times, and no other 52-week window in the survey saw the rate double10.
America’s lock-in
FHFA counted 51.4 million outstanding mortgages in the second quarter of 202613. Of them, 19.2% carried a rate below 3% and 29.9% a rate between 3% and 3.99%, so 49.1% were below 4%13. At the other end, 22.5% were at 6% or more, the average rate was 4.4%, and 83.1% were 30-year fixed-rate loans13.
The share below 4% peaked at 65.2% in the first quarter of 2022 and has been shrinking slowly, to 49.1% in 2026, as old loans close and are replaced at today’s rates14. The share at 6% or more rose from 7.3% in 2022 to 22.5% in 202614.
That is the lock-in. Someone with a cheap loan who sells and buys again swaps into today’s rate, which on the median home is $904 more a month than 3%5. In September, existing-home sales ran at an annual rate of 3.99 million, down 2.2% from a year earlier, and first-time buyers were 31% of sales4. US mortgage balances were $13.117 trillion at the end of June 2026, out of $18.771 trillion of household debt15.
Britain: the same arithmetic on a schedule
In the UK, fixed deals expire every few years, so a new rate arrives on a set date. The Bank of England’s Bank Rate is 3.75%16. Moneyfacts reported the average two-year fixed mortgage rate at 5.98% on October 5, 2026, its highest since mid-December 202317. The Bank of England says nearly 750,000 households paying less than 3% will roll off fixed deals in 2026 and see an average increase of £170 a month, and that a little over 5 million households are projected to see their repayments rise by the end of 202818.
What to take from it
None of this says what to do. It explains why a rate that sounds modestly higher costs so much more: the early years of a long loan are mostly interest, and the longer the loan, the more of those years there are. And it puts today’s rate in context. At 7.40%, the 30-year rate is close to its average since 1971, and the strange loans were the 3% ones, which lasted about 16 months2,10.
