Inflation Pushes Mortgage Rates Up to 3.85%. Experts Warn Borrowers Not to Panic: ‘Historically, Rates Are Still Fairly Low.’

A photo to accompany a story about the latest mortgage rates Hannah Beier/Bloomberg/Getty Images
A home for sale in Philadelphia, Pennsylvania, on Jan. 31, 2022. Like the rest of the U.S., the Philadelphia metropolitan area is experiencing low housing inventory, rising inflation, and rising mortgage rates.
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Inflation continues to hit levels not seen in 40 years, and mortgage rates are rising with it.

The 30-year fixed rate average increased to 3.85% – its highest since March 2020 – while the latest figures from the Bureau of Labor Statistics Thursday showed year-over-year inflation of 7.5% in January. That’s the highest in 40 years.

“It’s one word: It’s inflation,” says Rob Cook, vice president for marketing, digital, and analytics for Discover Home Loans. 

Persistently high inflation will push the Federal Reserve to raise its benchmark short-term interest rate, increasing costs for lenders, who will pass those costs on to borrowers in the form of higher interest rates, Cook says. 

The mortgage markets have likely already built in some of the expected increases caused by Fed moves, says Shashank Shekhar, founder and CEO of InstaMortgage. “If we get a lower inflation number, if we get an indication that we might not get four rate increases this year, that might benefit mortgage rates,” he says. 

Employment numbers are another big driver of inflation. Last week the BLS reported that the economy added 467,000 jobs in January, with the unemployment rate at 4%. That wasn’t expected after the economic shocks of the pandemic, Shekhar says. 

“We really haven’t caught a break when it comes to news impacting mortgage rates over the last three months,” Shekhar says.

While rates are up quite a bit in the last few months, they still aren’t very high when you take a broader view, Cook says. 

Borrowers shouldn’t panic, he says. “Historically, rates are still fairly low.”

About the Latest Mortgage Rates

Except where otherwise noted, mortgage rate data in this story is based on mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures.

Mortgage Rate Predictions for February 2022 

Experts told us they expected to see mortgage rates keep climbing toward 4% in February, with some volatility. On a week-to-week basis they could jump up and down, but they will generally not move as fast throughout the year as they have in these first several weeks, said Ali Wolf, chief economist at Zonda, a California housing data and consultancy firm. “We aren’t expecting a straight line up for mortgage rates,” she told us.

When it starts raising interest rates, expected in March, the Federal Reserve will also have to consider the overall health of the financial system, including the housing market, Mark Vitner, a senior economist at Wells Fargo, told us. “They don’t want to create instability in the financial markets just in the pursuit of bringing down inflation.” 

The Highs and Lows of the Average 30-Year Fixed Mortgage Rate

Here’s a look at how current mortgage rates compare to where they’ve been over the last few years, along with inflation rate and national home prices for each year. 

2019202020212022 (through Feb.10)
Highest 30-year Fixed Mortgage Rate4.05%3.88%3.34%3.85%
Lowest 30-year Fixed Mortgage Rate3.74%2.95%2.93%3.4%
Inflation Rate2.3%1.4%7%7.5%
Median Home Sale Price $274,600$300,200$353,400N/A
*National Association of Realtors data on existing single-family home sales. 

Last week’s 3.85% is the highest the 30-year fixed rate has been since before the pandemic, but it’s on par with rates from 2019, which was still a good year for mortgage rates. 

What Other Mortgage Industry Data Is Showing 

There was a big jump in a similar survey by Freddie Mac, which saw the average 30-year fixed rate hold rise 14 basis points to 3.69%. The Freddie Mac survey hasn’t seen an average that high since January 2020.

Freddie Mac is a government-sponsored entity that buys mortgages on the secondary market. Its survey methodology and the time period in which it collects data differ from others, such as the Bankrate survey referenced in this article. While different mortgage rate averages will vary, they show similar trends over time.

What the Latest Mortgage Rates Mean for New Homebuyers  

Rising interest rates can cut into your buying power when shopping for a home. Shekhar cautions shoppers to double-check that preapproval letter from a lender, saying those are often for a certain payment, not a certain loan amount. “When the rates go up suddenly like the rates have, you need to go back to your loan officer and get the preapproval letter checked,” he says.

Home prices also continue to go up, creating a “double whammy” for homebuyers, Shekhar says. That doesn’t necessarily mean fewer buyers, either. “Sometimes rising rates actually bring more buyers into the market versus the other way around,” he says. “They think that because rates are going up we should buy sooner rather than later.”

Prospective buyers should be careful to keep an eye on their possible monthly payments, Cook says. “Borrowers should really look at their finances and redo their calculations in terms of how much house they can afford.” Try your estimates in NextAdvisor’s mortgage calculator to see what your payment might look like.

Don’t let the interest rates play too big of a role in deciding on a home purchase. Rates are still near historic lows, and waiting to see if prices drop might be futile. Don’t try to time the market just to get a better interest rate, that’s “a mug’s game,” Tendayi Kapfidze, head of economic analysis at U.S. Bank, told us

What the Latest Mortgage Rates Mean for Existing Homeowners  

Despite rising interest rates, it might still make sense to refinance your existing mortgage. If you went through the past few years without refinancing, you might hold a loan with a rate significantly higher than the near-4% rates available on the market today. In that case, it could make sense to refinance, especially if you can score a rate at least 0.75% lower.

That isn’t the only situation in which refinancing makes sense, Shekhar says. You might want to consider a refinance if it will help you get rid of FHA mortgage insurance, especially considering the rise in home values, he says. You might also want to switch from an adjustable rate mortgage to a fixed rate to lock in a low rate. A cash-out refinance can also help pay off higher-interest debt, such as credit card debt.