What home buyers need to know about soaring mortgage rates

It's getting even harder to buy a home.

The average mortgage rate recently hit a 21-year record of 7.09 percent, according to Freddie Mac, significantly increasing the cost of acquiring a home for all but the most cash-rich buyers. That's more than double the rate of a few years ago.

Here's what to know about rising mortgage rates and the effect on home buyers.

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Why are mortgage rates so high?

Mortgages have become more expensive because of the Federal Reserve's campaign to get inflation under control.

The U.S. central bank has repeatedly raised the federal funds rate - the interest rate at which banks lend each other money - to increase borrowing costs for everyday people and businesses. More expensive debt, the reasoning goes, means less spending and that should gradually slow the rise in prices.

To a large extent, it has worked: The annual rate of inflation stood at 3.2 percent in July, far lower than last summer's peak of 9.1 percent.

Mortgage rates tend to move in the same direction as the federal funds rate, although lenders' efforts to manage risk and expectations for future inflation also play a role.

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How does this impact affordability?

Individuals buying houses typically get mortgages, which are loans for the purchase of a home. Home mortgages usually have terms that last 10 to 30 years.

Because mortgages cover such a massively expensive purchase over a loan period that can span a generation, even small differences in the interest rate can make a huge difference in what the homeowner has to pay every month.

Let's say a home is being bought for $250,000 with a 20 percent down payment. Holding all else equal, the difference in monthly payment from a 3 percent interest rate and a 7 percent rate comes out to more than $500 a month, according to a...