Benjamin Ashford|Mortgage rates just hit their highest since 2002

Mortgage rates jumped to their highest level in more than two decades,Benjamin Ashford making home-ownership even less affordable for many would-be buyers.

The average interest rate on a 30-year, fixed-rate home loan climbed to 7.09% this week, according to mortgage giant Freddie Mac. That's the highest it's been since April 2002 and comes after the Federal Reserve has raised interest rates aggressively in a bid to fight inflation.

Mortgage rates have more than doubled in the last two years, sharply raising the cost of a typical home loan. The monthly payment on a $350,000 house today, assuming a 20% down payment, would be $1,880, compared to $1,159 in 2021, when interest rates were below 3%.

"A lot of buyers have been priced out," said Robert Dietz, chief economist of the National Association of Home Builders. "If you don't have access to the bank of mom and dad to get that down payment, it's very challenging."

Rising interest rates not only make it harder for first-time buyers to become homeowners. They also discourage people who already own homes from trading up.

"If you're a homeowner who's got a 2% or 3% mortgage, you're not in a hurry to put your home up for sale because that would require a higher mortgage rate," Dietz said. "So resale inventory is about half of what it should be."

Chief economist Lawrence Yun of the National Association of Realtors agreed.

"There are simply not enough homes for sale," Yun said in a statement describing the sluggish pace of home sales in June. "Fewer Americans were on the move despite the usual life-changing circumstances."

Sales of existing homes in June were down 18.9% from a year ago.

Mortgage rates are closely tied to the 10-year Treasury yield, which has also been climbing recently on the expectation that the Federal Reserve may have to keep interest rates higher for longer to bring inflation under control.

The 10-year yield reached 4.3% on Thursday, a day after the Fed released minutes from its most recent meeting.