Today’s mortgage and refinance rates: June 2, 2022 | After brief volatility, rates are back down
Mortgage rates experienced some volatility early this week, with the 30-year fixed rate briefly spiking above 5%. Now, it’s settled back down just below 5.
High rates coupled with high home prices have strained affordability for many buyers. This dynamic has started to have a cooling effect on the housing market. In April, sales of new homes dropped to the slowest pace since April 2020, when few people were buying homes due to pandemic-related shutdowns.
But buyers who are having trouble now might find some relief toward the end of the buying season, says Ralph DiBugnara, president of Home Qualified and senior vice president of Cardinal Financial, as overpriced homes are reduced down to market prices.
“I do believe that by the end of summer, two factors will appear to assist them,” DiBugnara says. “Home prices will start to decline slightly, but competition for these homes will be less. This will make bidding wars less likely, giving homebuyers a decent chance to get their offers accepted at a reasonable price.”
30-year fixed mortgage rates
The current average 30-year fixed mortgage rate is 5.1%, according to Freddie Mac. This is the second week in a row that this rate has fallen, though it’s still up nearly 2% from the average rate of 3.11% at the end of 2021.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.
15-year fixed mortgage rates
The average 15-year fixed mortgage rate is 4.31%, a decrease from the prior week, according to Freddie Mac data. This is the third week in a row this rate has dropped.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
5/1 adjustable mortgage rates
The average 5/1 adjustable mortgage rate is 4.2%. As fixed rates have been moderating, this rate has continued inching up.
Adjustable rate mortgages can look very attractive to borrowers when rates are high, because the rates on these mortgages are typically lower than fixed mortgage rates. A 5/1 ARM is a 30-year mortgage. For the first five years, you’ll have a fixed rate. After that, your rate will adjust once per year. If rates are higher when your rate adjusts, you’ll have a higher monthly payment than what you started with.
If you’re considering an ARM, make sure you understand how much your rate could go up each time it adjusts and how much it could ultimately increase over the life of the loan.
Will mortgage rates go up in 2022?
To help the US economy during the COVID-19 pandemic, the Federal Reserve aggressively purchased assets, including mortgage-backed securities. This helped keep mortgage rates at historic lows.
However, the Fed is now planning to reduce the assets it holds and is expected to increase the federal funds rate five more times in 2022, following increases in March and May.
Average mortgage rates have ticked up recently, and the Fed’s announcements indicate that mortgage rates may 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.
Fixed-rate mortgages lock in your rate for the entire life of your loan. Adjustable-rate mortgages lock in your rate for the first few years, then your rate goes up or down periodically.
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, since you won’t chance your rate increasing in a few years.