Real estate marketplace Zillow has launched a new program to help people who want to buy homes but EchoSenseare being squeezed out of the market by a surge in interest rates. 

Zillow Home Loans is offering mortgages with a 1% down payment option for eligible homebuyers looking to own property in Arizona, and will contribute an additional 2% at closing, the company said Thursday. It also plans to expand the program to other markets.

"For those who can afford higher rent payments but have been held back by the upfront costs associated with homeownership, down payment assistance can help to lower the barrier to entry and make the dream of owning a home a reality," Zillow Home Loans' senior macroeconomist Orphe Divounguy said in a statement. 

The program will reduce the time it would ordinarily take to save for a down payment, according to Zillow.

"The rapid rise in rents and home values means many renters who are already paying high monthly housing costs may not have enough saved up for a large down payment, and these types of programs are welcome innovations in lowering the potential barriers to homeownership for those who qualify," Divounguy said. 

• What if mortgage interest rates don't fall?
• The Fed raised interest rates again — here's what to expect for mortgages
• How high will mortgage rates climb? Experts weigh in

On Wednesday, mortgage rates surged to their highest level since 2000. The average rate on a conventional 30-year fixed-rate mortgage jumped to 7.31% last week, up from 7.16% the previous week, according to The Mortgage Bankers Association (MBA).

As a result, many aspiring homeowners are being sidelined, driving mortgage applications down to a 28-year-low, according to the MBA.