Mortgage rates jumped this week to 3.4%, their highest since June 2020.
This new 30-year average fixed mortgage rate is a 0.13% increase from last week’s average rate of 3.27% – the largest weekly increase in more than 10 months.
This week’s jump matches the consensus among housing experts that mortgage rates will rise in 2022. The only question, experts say, is when and how will they rise?
Over the past few weeks, we’ve seen record inflation and record COVID-19 cases push and pull rates. Despite the uncertainty of a spike in COVID cases, the increase this week is consistent with Fed Chair Jerome Powell’s recent statements that the Fed expects to raise interest rates three times in 2022. With the Fed increasing rates as the economy improves, foreclosure rates Real estate and refinancing are sure to follow, experts say.
Here’s a look at where the prices are and what experts expect going forward.
About the latest mortgage rates
The average mortgage rate last week is based on mortgage rate information provided by national lenders to Bankrate.com, which is owned by Red Ventures such as NextAdvisor.
2022 Mortgage Rates and the Housing Market: What to Expect
Experts predicted that we would see increased rates and volatility in December and go into 2022, and that was largely the case. Last week’s increase in the average 30-year fixed-rate mortgage rate from 3.27% to 3.4% is the largest weekly increase in the past 10 months. The last time rates were this high was in the early days of the pandemic in June 2020 – more than a year and a half ago.
Experts expect continued increases.
Average fixed 30-year mortgage rates will reach 4% by the end of 2022, says Joel Kahn, economist at the Real Estate Bankers Association (MBA). Kahn cites projected economic growth in 2022 as one of the biggest reasons behind this prediction.
The Fed’s announcement that there could be up to three interest rate increases in 2022 provides further support to the belief that rates will continue to rise in 2022.
Part of that has to do with the economy being better prepared to handle new waves of novel coronavirus cases than it was during the early days of the pandemic, says Logan Mohtasami, HousingWire data analyst. Subsequent spikes in COVID cases have not had such a negative impact on the economy as the initial wave, so even as the pandemic continues, rates will likely continue to increase, he says.
If you look at the delta variable, “economic growth has continued relatively smoothly,” Danielle Hill, chief economist at Realtor.com told us recently. She said the new variables would have less impact on actual economic activity.
The majority of consumers share expert opinion. According to a recent study by Fannie Mae Housing, 56% of Americans believe that mortgage rates will rise within the next 12 months.
While current rates are not as low as the less than 3% we saw earlier this year, they are still very low from a historical perspective – and still at attractive refinancing levels. It remains well below pre-pandemic 4% levels.
As many as 38% of those who have a mortgage can reduce their rates by at least 0.50% that, according to Fannie Mae estimates, will translate into significant savings over the life of the loan. These lower interest rates can benefit home buyers because they mean less interest paid in the long run.
Mortgage rates for this week compared to previous years
|the past three years||Average Fixed Rate Mortgage for 30 Years|
Mortgage rates bottomed out a year ago when they hit record lows below 3%. This is nearly half a percent lower than today’s mortgage rates. But two years ago, the average 30-year fixed-rate mortgage rate was 3.81% — much higher than it is today.
The significant drop in rates in 2021 was largely a result of the economic effects of the COVID-19 pandemic and the Federal Reserve’s reactive policies to support the economy. Nearly 9 million workers reported losing their jobs in 2020, according to the US Bureau of Labor Statistics (BLS). In an effort to avoid widespread foreclosures, the Federal Reserve has implemented policies aimed at lowering interest rates to make housing more affordable. Low interest rates can help keep home purchase prices affordable and encourage homeowners to refinance to lower their monthly mortgage payments.
What Borrowers Should Know About These Mortgage Rates
Here’s what homebuyers and homeowners should know about expected mortgage rates.
New home buyers
Experts believe that the housing market began to calm down. Kahn recently told us that demand among buyers is expected to remain high. “We have a lot of young people among the population entering, or are already at, the prime age for home ownership,” Kahn says. But with home prices soaring over the past year, you may need a larger down payment to stay within your affordable range. While a lower mortgage rate can help offset down payment expenses, a large home loan can overwhelm potential savings from a lower mortgage rate.
Most experts say not to make time to market and buy when the time is right for your personal situation. Glenn Bronker, president of Ally Home, recently told us that if you’ve been sitting on the sidelines hoping for lower prices, you might be disappointed. He said that since home prices are expected to grow, timing the market is not a recommended strategy.
Whatever the decision, housing experts recommend planning in advance by:
- Save at least 10%, ideally 20%, down payment
- Find out how much home you can afford
- Do not rush to buy a house
- Sticking to a home buying budget
- Find an experienced real estate agent that you feel comfortable with
Existing home owners
Higher mortgage rates may make it seem like refinancing is no longer a good option, but that’s not necessarily true. A good rule of thumb is that if you can score a new mortgage rate 0.75%-1% below your current rate, it may be a good move to refinance. Homeowners who are on the fence about refinancing may want to consider this. Mortgage rates are expected to continue on their upward trajectory over the long term, so it may be worth working with the numbers with a few lenders to see if you can take advantage.
The rate and term refinancing can go a long way in reducing not only your monthly payments but also the amount of interest paid over the life of the loan. With home values rising across the country over the past year, you can also take advantage of raising your home’s equity by refinancing cash. Cash refinancing increased from 37% to 49% of total refinancing in the first half of this year, according to mortgage data analytics firm Black Knight. Cashback can be a useful tool to help pay off high-interest debt, pay for college expenses, or fund a home improvement project.