The average 30-year fixed mortgage rate hit 5% this week, the first time it’s been this high in over a decade, according to Freddie Mac.
Rates are expected to remain elevated as the Federal Reserve works to tame inflation, which reached a 40-year high in March. In its April forecast, the Mortgage Bankers Association predicted rates would end 2022 at an average of 4.8%.
High interest rates can put a strain on home shoppers’ budgets. However, if you’re thinking about buying a home, rising rates shouldn’t necessarily deter you.
“I still believe we are in a market that is advantageous to buy or own in,” says Ralph DiBugnara, president of Home Qualified and senior vice president of Cardinal Financial. “Higher rates mean less buying power in some cases, but rent is rising as fast or faster than home prices because of inflation, making buying the more ideal option for many.”
Will mortgage rates go up in 2022?
To help the US economy during the COVID-19 pandemic, the Federal Reserve was aggressively buying assets, including mortgage-backed securities. This helped keep mortgage rates at historic lows.
Average mortgage rates have ticked up recently, and the Fed’s announcements indicate that mortgage rates will probably continue to increase in 2022. You may want to lock in a rate now instead of risk a higher rate later, but don’t rush to buy a home if you aren’t ready.
What is a fixed-rate mortgage vs. adjustable-rate mortgage?
Historically, adjustable mortgage rates tend to be lower than 30-year fixed rates. When mortgage rates go up, ARMs can start to look like the better deal — but it depends on your situation.
Because adjustable rates start low, they are worthwhile options if you plan on selling your home before the interest rate changes. For instance, if you get a 7/1 ARM and want to move before the seven year fixed-rate period is up, you won’t risk paying a higher rate later.
But if you want to buy a forever home, a fixed rate could still be a better fit. Fixed rates are still relatively low, and you won’t chance your rate increasing in a few years.
“For borrowers with an ARM, it is important to keep track of the recent rise in rates,” Robert Heck, vice president of mortgage at Morty, says. “If you are already beyond or coming up on the end of your fixed-rate period (which vary based on loan type), it is worth taking a closer look at what your rate might become once it begins to adjust.”