Why Your Mortgage Is 7%

Why this matters

Between January 2021 and October 2023 the 30-year mortgage rate went from a record 2.65 percent to 7.79 percent, the fastest doubling since 1981, and most people blame that on the Fed directly instead of the real driver, the 10-year Treasury yield plus a spread.

I built the Williams family specifically to break that pattern: a bigger rate gap looks like an easy call to sell, until downsizing changes what the same gap actually means for them. Running four households through identical math to four different answers is what finally convinces students that personal finance depends on your own numbers, not a rule of thumb.

From one teacher to another

This lesson exists to correct the single most common misconception about mortgages, that the Federal Reserve sets them directly, when the real formula is the 10-year Treasury yield plus a spread of about 150 to 200 basis points. Students trace the actual 2022-2024 shock themselves, watching the 30-year rate move from a record 2.65% low in January 2021 to a 7.79% peak in October 2023, the fastest doubling since 1981. The four-household activity is where the concept becomes real math: playing a financial advisor, students compute the rate gap and monthly payment delta for the Martinez family, the Chens, the Williamses, and Maria Rodriguez, and I built one household, the Williamses, specifically to test whether a bigger rate gap always has to mean stay, since they're downsizing and that changes what the numbers actually recommend. Students also work through why homeowners with a low locked-in rate refuse to sell, since moving means re-borrowing at market rate, and how that lock-in effect froze existing-home sales well below their 2021 peak. The closing memo makes them explain, in their own words, why a Fed rate cut alone doesn't fix this, tying it back to the Treasury yield connection rather than the fed funds rate everyone assumes controls it.