US mortgage rates have climbed sharply in just over a month. Mortgage rates in the US have risen by about one percentage point to nearly 7.5%, reaching their highest level in around three years. The sudden increase has made home loans more expensive for buyers.

Mortgage rates could reach 8% if current pressures continue. Experts say it is difficult to predict exactly where mortgage rates will go next. However, continued pressure from inflation, economic growth, government borrowing and global uncertainty could push rates even higher. An 8% mortgage rate is now becoming a realistic possibility rather than a distant risk. Oil prices and the Iran conflictThe US attack on Iran on February 28 added to concerns about inflation.

Mortgage rates jumped in the weeks after the attack as investors worried that the conflict would push oil prices higher. More expensive oil can raise the cost of producing and transporting goods, adding to inflationary pressure.

Why have US bank stocks lost $270 billion in market value as rising interest rates threaten Wall Street’s profit boom?US Treasury Secretary Scott Bessent has linked higher borrowing costs to energy prices.

Bessent has attempted to bring down Treasury yields through government bond buybacks, but these efforts have had little effect on the recent increase. He has blamed much of the rise in bond yields and mortgage rates on energy prices.

Bessent expects interest rates to fall once the Iran conflict ends. Speaking on Monday, Bessent said he did not know whether the conflict would end within a week, a month or two months. However, he believes energy prices will be much lower after the conflict and that interest rates, including mortgage rates, will come down, according to Yahoo Finance. Strong US economic growth is adding pressureUS economic growth has remained strong despite higher borrowing costs. Consumer spending helped the country's gross domestic product (GDP) grow at an annual rate of 2.2% in the second quarter. Recent data on manufacturing activity and consumer spending have also continued to show healthy economic growth.

Inflation above the Federal Reserve's target is another concern for investors. The US Federal Reserve aims to keep inflation at 2%, but inflation is currently at 3.4%. When the economy remains strong and inflation stays above the target, investors may demand additional returns for holding long-term bonds. This pushes yields and mortgage rates higher. The AI boom is affecting mortgage ratesThe rapid expansion of artificial intelligence is contributing to US economic growth. Technology companies are investing heavily in data centres and other infrastructure needed to support AI. These investments have become one of the factors helping drive economic activity in the country.

Technology companies are borrowing hundreds of billions of dollars to fund AI investments. These companies are issuing large amounts of debt to pay for their AI infrastructure projects. Such bonds can attract investors because they often offer higher returns than US government bonds. Some technology companies also have credit ratings close to or even stronger than that of the US government.

Economists say the AI investment boom could be competing with other investment options. Kara Ng, a senior economist at Zillow, said the surge in AI spending could have a crowding-out effect on similar investment instruments, according to Yahoo Finance. This means the growing demand for AI-related debt could make it harder for other bonds to attract investors without offering higher returns.

Social Security COLA 2027: Why a $73 monthly boost could spell trouble ahead of October 14 announcementRising US government debt is adding to investor concernsRecord US government debt is raising questions about the country's finances. The US national debt crossed a record $40 trillion earlier in 2026. The debt has grown significantly since the COVID-19 pandemic, adding to concerns about the government's ability to manage its borrowing, according to Yahoo Finance.

Higher Treasury yields also increase the government's interest costs. When interest rates rise, the government must spend more money paying interest on its growing debt. Concerns about rising debt, continued borrowing and higher interest payments can make investors less willing to buy Treasury bonds, putting further upward pressure on yields and mortgage rates. Federal Reserve rate hikes could push mortgage rates towards 8%Mortgage rates can rise before the Fed actually increases its policy rate.

Financial markets often respond to expected Fed decisions in advance. This means the possibility of future interest rate hikes can already be reflected in mortgage rates before the central bank announces any change.

Traders see a high chance of at least one more Fed rate hike by the end of 2026. According to CME FedWatch, traders see an 86% probability of at least one 25-basis-point increase in interest rates by year-end. A 25-basis-point increase equals 0.25 percentage points. These expectations could keep pressure on mortgage rates.

Mortgage rates have eased slightly from their recent highs, but the risk of another increase remains. Mortgage News Daily reported that the average mortgage rate stood at 7.48% on Friday, its lowest level in two weeks. However, this small decline does not mean rates are on a sustained downward path.US homebuyers face the risk of even more expensive loans in the coming months.

Oil prices and the Iran conflict, strong economic growth, AI-related borrowing, rising government debt and expectations of further Fed rate hikes are all adding to uncertainty. If these pressures continue to push Treasury yields higher, mortgage rates could move closer to 8%, making homeownership more expensive for buyers.