- The average 30-year fixed mortgage rate went up 0.02% to 3.24% last week.
- This is the second week in a row of rate increases.
- Rates can fluctuate daily, so while we could see rates fall back down, many experts believe they will continue going up for the remainder of the year.
- Current homeowners can still benefit from a refinance since rates remain near historic lows.
- Some experts say don't wait to buy if the time is right for you.
The average 30-year fixed mortgage rate rose again last week by 0.02% to 3.24%. This is the second week in a row rates have increased following rate drops a few weeks prior. This upward trend is consistent with what many industry experts previously predicted.
“Driven by inflation and the Federal Reserve’s policy changes, there is a high probability that mortgage rates will continue to increase,” says Lawrence Yun, chief economist with the National Association of Realtors. The days of the low interest rate environment are coming to an end, he says. “Over the long term, expect to see higher mortgage rates than we’ve had recently,” he continued.
Rates can change daily, and while we could see them fall back down in the future, they are likely to continue going up. So it might be more advisable to lock in a rate right now if it’s beneficial for your situation. In fact, earlier this month, a single week increase of 0.7% wiped out several weeks worth of rate drops. If you’re still on the fence, remember that these rates are still nearly a full 1% lower than pre-pandemic levels.
Here is a closer look at what this means for you today, and what we could see from rates moving 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.
Mortgage Rates: Looking Back
The average 30-year fixed mortgage rate was hovering around 3.01% this time last year. That’s 0.23 percentage points lower than last week’s average. Two years ago, rates were around 3.89% — much higher than they are today.
The low rate environment over the last 18 months can be attributed to the economic effects of the COVID-19 pandemic. Nearly 9 million people filed for unemployment in 2020, according to the U.S. Bureau of Labor and Statistics. Unemployed homeowners were at risk of defaulting on their mortgages, so the Federal Reserve reacted by implementing policies to drive down rates to keep housing affordable. Homeowners were then able to take advantage of lower rates by refinancing and lowering their monthly mortgage payments.
Mortgage Rates: Current Outlook
Current mortgage rates are on a gradual upward trend since the sub-3% rates we saw earlier this year. This recent increase is in line with many industry expert predictions. While it may be tempting to wait for rates to fall, keep in mind that while rates can change daily, they are just as likely to keep increasing slightly. Still, 3.24% is low compared to historical standards. If it benefits you to lock in a low rate now, it’s best not to wait it out.
If you currently own a home, 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 to consolidate debt or finance home improvements.
You could also benefit from the current rate environment if you’re in the market to buy a home, as long as you keep close tabs on how much you can afford. With housing prices having increased over the past year, you might need a larger down payment to stay within your budget.
Cash-out refinances are gaining in popularity — increasing from 37% to 49% of total refinances in the first quarter 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.
Experts believe the housing market is starting to cool down. But housing prices are still high. A larger home loan can overshadow the potential savings from a low mortgage rate and force homebuyers to save for larger down payment just to keep home budgets in an affordable range. Some buyers are forced to put off buying altogether.
Mortgage Rates: Looking Forward
Looking forward, housing experts predict a continuation of the same trend — rates will continue increasing through the end of the year and into 2022 — citing inflation as a key factor. Federal Reserve Gov. Christopher Waller said in a recent statement that the committee may have to pivot away from near-zero interest rates as a result of the surge of inflation.
Better unemployment numbers are also contributing to rising interest rates. The pandemic-high unemployment rate of 14.8% was in April of 2020. According to the U.S. Bureau of Labor Statistics (BLS), the unemployment rate this past October was down to 4.6%.
With inflationary pressures and unemployment slowly returning to pre-pandemic levels, the Federal Reserve has less of an incentive to take actions that would drive down mortgage rates.
What This Means for Borrowers
Some experts recommend delaying your home purchase altogether. Yun told us earlier this year that we should see housing inventory improve by the spring of 2022. Other experts advise you to buy when the time is right for you. Skylar Olsen, principal economist at Tomo, a digital real estate and mortgage company, told us previously: “It can still be a good move to buy, even with higher home prices and rising rates.” Olsen says home appreciation has already reached its peak and she expects less bidding wars.
If you don’t want to wait to buy a home, housing experts recommend planning ahead:
- Know how much house you can afford
- Sticking to a home buying budget
- Save for a large enough down payment
- Avoid rushing into buying
Now may be a good time for a refinance. Homeowners who are holding off may want to take another look at whether it could make sense for them. Rates are likely to continue its upward trajectory in the long term, so it may be worth crunching the numbers with a few lenders to see if you can benefit now.