For the first time since July 2023, the Federal Reserve has raised interest rates. This is exactly what the market did not need as we begin the Fall buying & selling season.
The increase was not a surprise by the time it was announced. Markets had been anticipating it for several weeks. Still, it represents a major reversal from earlier this year, when many expected as many as three rate cuts during 2026. The real story is how quickly the outlook shifted from multiple expected cuts to the first rate increase in more than three years.
The Federal Reserve raised its target federal funds rate by one-quarter of a percentage point, bringing it to a range of 3.75% to 4%. The federal funds rate is not a mortgage rate, but it influences borrowing costs and reflects the Fed’s broader view of inflation and the economy.
Mortgage rates also moved approximately a quarter of a percentage point higher in conjuction with the higher rates, pushing a traditional 30-year fixed mortgage back to over 7%.
But what does 7% actually mean for someone buying a home in Northern Virginia?
It depends on far more than the purchase price. The loan amount, down payment, loan program, income and credit profile can all affect the rate. In fact, someone borrowing $1.2 million may currently receive a lower rate than someone borrowing $675,000.
To see what today’s rates actually look like, I asked the best lender I know, John Pyne with Atlantic Bay Mortgage, to price three common Fairfax County purchase scenarios.
These rates were provided on September 16, 2026, after the Fed increase. They are real examples, but actual pricing depends on the borrower, property and loan structure.
All three are zero-point rates, allowing for a fair comparison. Buyers can pay more at closing to obtain a lower rate, but that only makes sense if they recover the upfront cost before selling or refinancing. That becomes less likely if they expect to refinance when/if rates decline.
Buying a $1.5 Million Home
Assume a buyer purchases a $1.5 million Fairfax County home with 20% down.
Purchase price: $1,500,000
Down payment: $300,000
Loan amount: $1,200,000
Loan type: Jumbo
The 30-year fixed rate is approximately 6.75%, producing a monthly principal and interest payment of approximately $7,783.
The 7-year ARM is approximately 6.50%, with an initial monthly payment of approximately $7,585.
That is a savings of only $198 per month. The ARM rate is fixed for seven years and may adjust afterward, so the relatively modest savings may not justify the future rate risk for every buyer.
Fairfax County’s base real estate tax rate is currently $1.12 per $100 of assessed value. Assuming the property is assessed at its $1.5 million purchase price, real estate taxes would add approximately $1,400 per month.
The estimated monthly payments before homeowners insurance and any HOA fees would be:
30-year fixed: approximately $9,183
7-year ARM: approximately $8,985
Buying a $750,000 Home With First-Time Homebuyer Pricing
Now assume a first-time homebuyer purchases a $750,000 home with 10% down and qualifies for favorable pricing available on certain conventional loans backed by Fannie Mae or Freddie Mac.
Purchase price: $750,000
Down payment: $75,000
Loan amount: $675,000
To qualify for this pricing, the buyer must meet the first-time homebuyer requirements and have qualifying income at or below 120% of the area median income. The current income limit is $196,920.
The discounted 30-year fixed rate is approximately 6.875%, producing a monthly principal and interest payment of approximately $4,434.
The 7-year ARM is approximately 6.75%, with an initial monthly payment of approximately $4,378.
The difference is just $56 per month.
Estimated Fairfax County real estate taxes would add approximately $700 per month, bringing the estimated payments to:
30-year fixed: approximately $5,134
7-year ARM: approximately $5,078
These totals do not include homeowners insurance, mortgage insurance or any HOA or condominium fees. Because the buyer is putting down less than 20%, mortgage insurance may also be required.
Buying a $750,000 Home Without Discounted Pricing
Now consider the same $750,000 purchase with the same 10% down payment, but without the first-time homebuyer pricing benefit.
The standard 30-year fixed rate is approximately 7%, producing a monthly principal and interest payment of approximately $4,491.
The 7-year ARM is approximately 6.875%, with an initial monthly payment of approximately $4,434.
Once again, the ARM saves only about $57 per month.
After adding approximately $700 per month for Fairfax County real estate taxes, the estimated payments become:
30-year fixed: approximately $5,191
7-year ARM: approximately $5,134
Homeowners insurance, mortgage insurance and any HOA or condominium fees would be additional.
The Larger Loan Has the Lower Rate
This is the part that surprises many buyers.
The $1.2 million jumbo loan is currently priced at 6.75%, while the standard $675,000 conforming loan is priced at 7%.
Banks often compete aggressively for well-qualified jumbo borrowers. These buyers tend to have substantial assets, strong credit and larger down payments. Lenders may offer better mortgage pricing because they also want the broader banking relationship that can come with that borrower.
Why Are ARM Rates Barely Lower?
Historically, buyers considered adjustable-rate mortgages because they offered meaningfully lower initial payments. Right now, the difference is surprisingly small.
When rates are elevated, investors expect more borrowers to refinance if rates eventually decline. That does not mean rates are guaranteed to fall or that every homeowner will refinance. It means today’s mortgages may not remain outstanding long enough to generate years of additional income for the lender or investor.
In plain English, lenders are not offering a major ARM discount because they already expect many of today’s higher-rate loans to have a shorter life.
What should buyers watch next?
From here, the most important number to watch is not necessarily the federal funds rate. It is the 10-year Treasury yield, which more directly influences mortgage rates. That yield has recently been around 5%. Mortgage rates had already moved higher before the Fed announced its increase because the bond market saw it coming.
If inflation and Treasury yields remain around 5%, mortgage rates could stay near 7% or move higher regardless of what the Fed does next. If inflation cools and investors return to bonds, which results in a lower 10 year yield, mortgage rates could go down even without an immediate Fed rate cut. The Fed will continue to dominate the headlines, but the bond market actually tells us more about where mortgage rates are actually going.
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