Purchase applications are below last year's levels as mortgage rates climb

Even a small move in mortgage rates can translate to tens of thousands of dollars in extra interest costs.

More people are hitting pause on buying a home, as surging mortgage rates continue to hinder the housing market.

Demand for mortgages to buy homes, as well as refinancings, fell about 3% week over week, according to industry data, as the 30-year mortgage rate jumped higher on the back of concerns over inflation and a possible interest-rate hike by the Federal Reserve.

Mortgage rates are now at the highest level in over a year. The 30-year fixed-rate mortgage averaged 6.81% as of the week ending July 31, according to the Mortgage Bankers Association trade group. That was for mortgages with conforming balances of $832,750 or less. The 30-year rate for home loans was up 5 basis points in one week.

"In the wake of the July [Fed] meeting, longer-term rates increased, with mortgage rates reaching their highest level in more than a year," Mike Fratantoni, chief economist at the MBA, said in a statement.

Mortgage rates are up because of political and economic developments. The Federal Reserve last week kept its benchmark interest rate steady, but geopolitical tensions in the Middle East and surging energy costs are feeding into higher fuel prices, which in turn are sparking concerns about inflation and the direction of the Fed's monetary policy. That had then translated into higher Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD30Y and mortgage rates.

The 30-year mortgage rate for jumbo loans - mortgages that exceed conforming balances of $832,750 - also rose to 6.72%, up 2 basis points from a week prior.

The housing market could be losing momentum

The jump in mortgage rates has spooked potential home buyers.

Mortgage demand, as measured by the volume of purchase applications, fell 4% from a week before, and was 3% lower at the end of July versus the same period a year prior.

"Application volume for both refinance and purchase loans declined for the week, and are now running behind last year's pace," Fratantoni said, "indicating that higher mortgage rates have weakened overall demand."

In other words, the housing market is feeling the blow from rising mortgage rates, as buyers have found another reason to wait on the sidelines. An increase in mortgage rates means potentially higher monthly mortgage payments.

Related: These are the toughest places in America to sell a home right now

A home buyer purchasing a median-priced $425,000 home with a 10% down payment, a credit score of 740 to 759, and a 30-year mortgage rate of 6.5% is facing principal and interest payments of about $2,418, according to Bankrate's mortgage calculator. That monthly payment jumps to $2,496 if they take a 30-year conforming loan at a rate of 6.81%.

Even though that's just about $80 more per month, that seemingly small rate jump could cost the buyer roughly $28,000 more in additional payments.

-Aarthi Swaminathan