Mortgage Rates Above 7%: What It Means for Twin Cities Buyers and Sellers

Mortgage rates are back above 7%. That could slow parts of the Twin Cities market. The real question is which buyers, sellers and areas will feel it most. If your plan depends on rates dropping soon, you may need to rethink it. Here’s what changed and what still works.

Figures are as of my video above (October 2026).

What happened

On September 16, the Federal Reserve raised its key rate by a quarter point, to 3.75% to 4%, its first hike in more than three years, and all 12 voting members agreed. Inflation is still above the Fed’s 2% target, driven partly by energy prices, strong spending and business investment. The Fed’s outlook left room for one more hike this year.

The Fed doesn’t set your mortgage rate

Mortgage rates follow the 10-year Treasury yield, the bond market’s own forecast, which reacts to inflation, growth and fear every day. That yield crossed 5% before the Fed met and stayed above it afterward. Mortgage rates rose six weeks in a row; Freddie Mac’s 30-year average was 7.28% as of October 1, up from 6.34% a year earlier.

Your own rate also depends on your credit, down payment, loan type and points, which is how some buyers still land below the average.

What it does to a payment

The August metro median was about $405,000; in Dakota County, about $415,000. On a $415,000 Dakota County home with 20% down (a loan of about $332,000), principal and interest is:

• About $2,064 a month at 6.34%
• About $2,272 a month at 7.28%

That’s about $208 more every month, or close to $2,500 a year, before taxes, insurance or HOA dues. Metro prices rose just over 1% in a year, and Dakota County’s close to 4%, yet the rate moved the payment more than the price did. A single recent quarter-point jump added about $56 a month on this loan, more than a year of metro price growth.

Where rates may go

In January, Fannie Mae expected rates near 6% through 2027. Its September update moved that to about 6.8% for the rest of this year and 6.7% for 2027. Watch the Fed’s next meetings (October 28 and December 9), but don’t put your whole plan on hold for them.

The market isn’t stuck

The people feeling it most are those waiting for lower rates: buyers who need a lower payment to qualify and sellers who expected buyers by now. But plenty of homes are moving. In Dakota County, closed sales were up over 7% in August, the median rose almost 4%, homes averaged about 43 days to sell, and sellers got about 98% of original list price. People with a real reason to move are still buying and selling.

Options that still work

1. Assumable loans. FHA and VA loans can often be assumed, so the buyer keeps the seller’s original rate. You don’t have to be a veteran to assume a VA loan, but if a non-veteran assumes it, the seller’s VA entitlement may stay tied to that loan.

Example: a seller owes $250,000 at 3% with 25 years left, a payment of about $1,186 a month. A new $250,000 loan at 7.28% runs about $1,711. Assuming saves about $525 a month, more than $6,000 a year. But on a $405,000 home, the roughly $155,000 gap between price and loan balance has to come from cash or a second loan. Assumptions often take 45 days or more, sometimes over 100. FHA caps the assumption fee at $1,800, and VA charges a funding fee of 0.5% of the loan balance.

2. A 15-year loan. Rates averaged around 6.6%. On a $324,000 loan, that’s about $2,840 a month, versus about $2,217 on a 30-year. It costs more monthly but saves a lot over the life of the loan. Run both.

3. Adjustable-rate mortgages. Right now a 5/1 ARM isn’t much cheaper than a 30-year fixed, so for most buyers it’s not the shortcut it used to be.

For sellers

Higher rates mean fewer buyers qualify at your price, so pricing matters even more; overpriced homes sit. If you have an FHA or VA loan, check your rate. A 3% assumable rate could be your listing’s biggest selling point, so make sure your agent markets it.

Stuck on your next move? Let’s run your real numbers before waiting costs you more, or try our affordability calculator. Also see the forecast through 2030.