Rapid rise in mortgage rates startles homebuyers; blame inflation fears

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All the big unknowns surrounding the rapid jump in inflation — including how consumer prices will rise and how quickly the Federal Reserve will raise interest rates — put the mortgage market on high alert in early 2022.

“Prices have picked up fairly quickly and there is still a slight upward movement,” said Keith Jumpinger, vice president at mortgage information site

The 30-year fixed-rate mortgage rate rose abruptly in January on concerns that the Federal Reserve could raise interest rates four times in 2022, instead of two or three times.

The 30-year average was 3.08% in mid-November last year, but had jumped to 3.54% by last week, based on Freddie Mac’s data, according to Gumbinger. The rates were trending higher in the week of January 17th.

The speed was somewhat staggering, but so was the slight increase in inflation last year.

Gumbinger blames the rapid rise in mortgage rates on a lack of clarity, as well as a lack of experience among today’s bond market investors.

“A lot of investors in today’s markets haven’t really lived through a wave of inflation like this,” Gompinger said.

The consumer price index jumped 7% in December in the country compared to a year ago – reaching its highest level in nearly 40 years. This was the largest 12-month rise since June 1982.

Regional CPI rose 7.5% in December from a year ago in the Midwest, including Michigan. This was the highest elevation of all regions of the country.

Higher rates hit with higher inflation

We are dealing with an economy that should have developed after the COVID-19 pandemic disrupted supply chains, manufacturing, travel, entertainment and other activities for nearly two years.

Previous comment by the Fed that inflation may be relatively temporary now appears wrong, adding to concern that the Fed may need to move more aggressively than initially anticipated.

All eyes will be on the Federal Reserve, which holds its next policy meeting on Tuesday and Wednesday.

Most economists don’t expect the Fed to raise interest rates in January, but investors will carefully study the comments being made and look for any clues about the Fed’s direction when it comes to putting a lid on inflation.

The first rate hike could come once the Fed meeting scheduled for March 15th and March 16th.

What is the reaction so far?

As expected, many borrowers are now heading to anchor rates in anticipation of higher mortgage rates, according to Alex Elizag, chief strategy officer at Pontiac-based United Mortgage.

“The market is changing very quickly,” Elizag said.

He said that while refinancing in general for the industry has slowed, there is still strong demand from many homeowners who continue to refinance in order to withdraw money from their homes as home values ​​rise.

He said some people want that money now because they’re rebuilding their homes or paying off other, more expensive debt. He said homes available for sale are still limited in many markets, giving homeowners more reasons to remodel their existing homes and not move elsewhere.

“I think people will continue to benefit from the shares,” he said.

For homebuyers, Elisage said, 30-year mortgage rates are now still available in the low 3% to mid-3% range for those who qualify and shop.

“We see it’s definitely trending upwards,” he said. Mortgage rates are expected to increase further in the summer and later this year.

He said working with a local, independent mortgage broker can help people shop and discover options for homebuyers, veterans, and others. UWM operates a website called

Studying what is available simply by reviewing prices online may not be enough.

“You don’t buy a plane ticket that says ‘Give me the best rate from Detroit to Fort Lauderdale,'” he said.

“You’re just at Google, and good luck.”

Elizag expects the Fed to raise short-term interest rates three or four times this year, giving homebuyers more reason to do their bit to save money.

How high can mortgage rates go up?

As shocked as people may be by the recent increases in mortgage rates, rates are still close to historically high levels or even what we saw just a few years ago.

The 30-year average rate was 4% for nearly three years in May 2019, according to Gumbinger at

But the last time borrowers saw 30-year interest rates in the 5% range was in 2011.

He said that if you go back to January 1982, when inflation was hot, the 30-year average flat rate was over 18%.

Surprisingly, he said, the low point during the pandemic returned in January 2021 when the 30-year average rate was 2.65%.

“The lowest mortgage rates come in the worst economic climates,” Gompinger said.

Gumbinger said he does not expect rates to rise to 4% and remain there in 2022. Instead, he expects the 30-year rate to peak at around 3.75%, or 3.8%, this year. But he was surprised by the rapid climb so far.

If inflation subsides, mortgage rates may be heading down somewhat as well.

How much can higher rates cost you?

It’s helpful to put your potential payments into perspective, if you’re looking to buy a home.

Take, for example, someone planning to take out a $200,000 mortgage.

At 2.65% for a 30-year fixed-rate mortgage, the average repayment — excluding property taxes and private mortgage insurance — would be about $806 per month. This would add approximately $90,134 in total interest over the life of the loan.

Go to 3.65% and your monthly payment will increase by approximately $109 per month to a payment of approximately $915 per month, again covering only principal and interest cost. The total interest will be approximately $129,371 over the life of the loan.

Jump all the way up to 5% for this 30-year flat rate and the payment will be approximately $1,074 per month. This adds up to about $186,513 in total interest over the life of the loan.

more: Consumer prices rose 7.5% in the Midwest over the past year; faster than the nation

more: Michigan State University economist Lisa Cook is nominated for the Fed’s board: Here’s how it could have an impact

more: More than unemployment fears, Americans are worried about rising prices

Adjustable adjustable mortgages carry more risks

If you’re shopping for a home in 2022, a fixed rate mortgage may be a better option for many buyers than an adjustable rate product.

Although prices are trending upwards, the flat rate of 3.5% to 4% remains a historically good deal.

Shoppers can get a lower rate by opting for an adjustable rate mortgage, but experts say it’s best to move cautiously there.

When it comes to ARM’s mechanics, it’s time to “get away,” said Greg McBride, chief financial analyst at

“Fixed mortgage rates are still well under 4% and you wouldn’t save that much with ARM, but you’re going to put yourself at great risk in the coming years if we end up in a higher rate environment,” McBride said.

The concern is that prices are going to go up even more in the next few years since we started on some pretty amazing drops.

The average 30-year mortgage rate was 3.73% on January 19, with 0.74 points, according to mortgage loan site One point is a 1% fee on the loan amount — or $1,000 on a $100,000 mortgage. By paying points, borrowers can get a lower mortgage rate and possibly pay less interest over time if they hold that loan for an extended period of time.

The 5/1 ARM hybrid, which is repaired in the first five years and modified every year thereafter, has an average rating of 2.73% with 0.66 points, according to

The 30-year fixed rate is used mostly by borrowers and has been for many years.

Gumbinger said that ARM can still make sense for some if they know they’ll move in five or six years, like a small home buyer or even someone planning to move in a few years for retirement.

However, consumers need to be prepared and have savings on the side if prices go up and the homeowner is unable to move in this expected time frame.

Oftentimes first-time homebuyers choose to take out an adjustable mortgage to get the lowest possible monthly payment. But they may end up buying more home than they can afford — and putting themselves at greater risk of paying higher rates in the future as interest rates rise.

“A fixed-rate mortgage is the best measure of affordability,” McBride said. “Don’t use ARM as a crutch for affordability.”

Another major caveat: Many of the new ARM products on the market have the ability to adjust payments every six months, rather than once a year. As prices go higher, McBride said, you’ll be exposed to higher payments more quickly and more frequently.

He pointed out that the new products are structured so that they are modified every six months, instead of 12 months when the modification began. What used to be fixed in the first five years and adjusted every year after that is now fixed in the first five years but then adjusted every six months thereafter. Annual and urban limits still apply.

McBride said mortgage rates, which are now rising, could eventually fall back in late 2022 if concerns about an economic slowdown emerge.

“The 30-year fixed-rate mortgage could be as high as 4%, but later this year it will drop to about 3.5%. The key is the Fed’s inflation control,” McBride said.

And that’s the key question: How well is the Federal Reserve doing when it comes to keeping inflation in check?

Call Susan Tombor: Follow her on Twitter @Tomorrow. To subscribe, please go to sRead more about the business and sign up for our Business Newsletter.

This article originally appeared on the Detroit Free Press: Rapid Rise in Mortgage Rates Stuns Borrowers; Blame it on inflation problems

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