- The 30-year fixed mortgage rate saw its biggest increase in 10 months: Rising by 13 basis points to 3.4%
- Rates are now at levels not seen since June 2020, more than a year and a half ago
- Last week's increase to 3.4% aligns with what many experts have predicted after recent statements by Federal Reserve Chairman Jermome Powell, as well as the highest inflation in nearly 40 years
- Last week's increase contradicts speculation that surging COVID-19 cases and the Omicron variant might cause rates to decrease or remain flat
- Despite the increase, mortgage rates are still lower than prepandemic levels
- A significant number of homeowners still stand to benefit from a refinance, according to estimates from Fannie Mae
Mortgage rates jumped last week to 3.4%, the highest they’ve been since June 2020.
This new average 30-year fixed mortgage rate represents a 0.13% increase over last week’s average rate of 3.27% — the biggest weekly increase in over 10 months.
Last week’s jump is consistent with the consensus among housing experts that mortgage rates will rise in 2022. The only question, experts say, is when and how fast will they rise?
Over the last few weeks, we have seen record-high inflation and record-high COVID-19 cases push and pull on rates. Despite the uncertainty of surging COVID cases, last week’s increase is consistent with recent statements by Federal Reserve Chairman Jerome Powell that the Fed expects to raise rates three times in 2022. As the Fed increases rates with the economy improving, mortgage and refinance rates are sure to follow, experts say.
Here’s a look at where rates have been and what experts forecast going forward.
ABOUT THE LATEST MORTGAGE RATES
Last week’s average mortgage rate is based on mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures.
2022 Mortgage Rates and the Housing Market: What to Expect
Experts predicted we would see increasing rates and volatility in December and going into 2022, and that’s largely been the case. Last week’s increase of the average 30-year fixed mortgage rate from 3.27% to 3.4% is the largest weekly increase of the past 10 months. And the last time rates were this high was in the pandemic’s early days in June 2020 — over a year-and-a-half ago.
Expect the increases to continue, experts say.
The average 30-year fixed mortgage rates will hit 4% by the end of 2022, says Joel Kan, an economist at the Mortgage Bankers Association’s (MBA). Kan cites expected economic growth in 2022 and one of the biggest reasons behind this prediction.
Part of it has to do with the economy being better prepared to handle new waves of rising COVID cases than it was during the pandemic’s early days, says Logan Mohtashami, HousingWire data analyst. Subsequent surges in COVID cases haven’t had as much of a negative impact on the economy as the initial wave, so even while the pandemic continues, rates will likely continue increasing, he says.
If you look at the Delta variant, “economic growth continued relatively smoothly,” Danielle Hale, chief economist at Realtor.com, told us recently. New variants will have a smaller impact on actual economic activity, she said.
The majority of consumers share experts’ sentiment. According to a recent Fannie Mae housing study, 56% of Americans believe mortgage rates will increase over the next 12 months.
While current rates aren’t as low as the sub-3% we saw earlier this year, they are still very low from a historical perspective — and still at attractive refinancing levels. They remain significantly lower than the nearly 4% levels they were at prior to the pandemic.
As many as 38% of those with a mortgage could stand to reduce their rate by at least 0.50%, according to estimates from Fannie Mae, would translate to significant savings over the life of the loan. These lower interest rates could also benefit homebuyers as it would mean less interest paid over the long term.
Last Week’s Mortgage Rates Compared to Previous Years
|Last Three Years||Average 30-Year Fixed Mortgage Rate|
Mortgage rates bottomed out a year ago when they reached record lows below 3%. That is almost a half of a percent lower than where mortgage rates are today. But two years ago, the average 30-year fixed mortgage rate was at 3.81% — significantly higher than they are today.
The big 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 employment in 2020, according to the U.S. Bureau of Labor Statistics (BLS). In an effort to avoid widespread foreclosures, the Federal Reserve implemented policies intended to drive down interest rates to make housing more affordable. Lower interest rates can help keep homebuying affordable and encourage homeowners to refinance to lower monthly mortgage payments.
What Borrowers Should Know About These Mortgage Rates
Here’s what homebuyers and homeowners should know about forecasted mortgage rates.
Experts believe the housing market is starting to cool down. But the demand among buyers is expected to stay high, Kan recently told us. “We have a lot of younger people in the population entering, or who are already at, the prime homeownership age,” Kan says. But with housing prices having increased over the past year, you might need a larger down payment to stay within an affordable range. While a low mortgage rate can help offset down payment expenses, a large home loan can overshadow the potential savings from a low mortgage rate.
Most experts say not to time the market and buy when the time is right for your personal situation. If you’ve been sitting on the sidelines hoping prices will drop, you may be disappointed, Glen Brunker, president of Ally Home, recently told us. Since home price appreciation is forecasted to grow, timing the market is not a recommended strategy, he said.
Whichever you decide, housing experts recommend planning ahead by:
- Saving for at least 10%, ideally 20%, down payment
- Knowing how much house you can afford
- Don’t rush into a home purchase
- Sticking to a homebuying budget
- Finding an experienced real estate agent you’re comfortable with
Rising mortgage rates might make it seem like refinancing is no longer a good option, but that’s not necessarily true. A good rule of thumb is if you can score a new mortgage rate that is 0.75%-1% lower than your current rate, it could be a good move to refinance. Homeowners who are on the fence about refinancing may want to consider it. Mortgage rates are expected to continue their upward trajectory in the long term, so it may be worth crunching the numbers with a few lenders to see if you can benefit.
A rate and term refinance could 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 across the country having increased over the past year, you could also take advantage of the increased equity in your home by doing a cash-out refinance. Cash-out refinances increased from 37% to 49% of total refinances in the first half of this year, according to mortgage data analytics firm Black Knight. A cash-out refi can be a useful tool to help pay off high-interest debt, pay for college expenses, or fund a home improvement project.