Mortgage rates skyrocket in the new year – but today’s rates may look cheap for a long time – The Hamden Journal
The New Year brings homebuyers and refinancing owners something they dread, but expect: soaring mortgage rates.
The average rate on America’s most popular home loan has reached its highest level in over a year, according to a widely followed survey.
But even as the numbers rise, mortgage rates remain close to all-time lows, at least for now.
30-year fixed mortgage rates
The average interest rate on a 30-year fixed-rate mortgage jumped to 3.22% last week, from 3.11% the week before, mortgage giant Freddie Mac reports.
A year ago, the Freddie Mac survey had 30-year fixed rate loans averaging 2.65%, which remains the lowest in history.
âMortgage rates rose in the first week of 2022 to reach their highest level since May 2020,â said Sam Khater, chief economist at Freddie Mac. “With higher inflation, promising economic growth and a tight labor market, we expect rates to continue to rise.”
While previous waves of COVID-19 have helped bring rates under control, this has not happened as the omicron variant is spreading wildly across the country.
But while mortgage rates are higher than they have been for a long time, they are still lower than they were before the pandemic of late 2019 and early 2020.
15-year fixed rate mortgages
The interest rate on a 15-year fixed-rate mortgage was on average 2.43% last week, down from 2.33% the week before, according to Freddie Mac.
On this date last year, 15-year mortgages averaged 2.16%.
Keep in mind that Freddie Mac’s numbers are indeed averages, which means the rates offered can be higher or lower. Some lenders currently advertise 15-year refi loans at 2% or less.
Shorter term mortgages are popular among refinancing homeowners who are willing to accept a higher monthly payment by going from a 30 year mortgage to a 15 year mortgage. In return, you pay much less interest over the life of your loan
5-year adjustable rate mortgages
Five-year variable rate mortgage (ARM) rates averaged 2.41% last week, unchanged from the week before. A year ago, loans averaged 2.75%.
ARMs generally start with lower rates than fixed rate mortgages. But after a while, an ARM begins to adjust, i.e. the rate increases or decreases in sync with the prime rate or some other benchmark.
The most popular variable rate loan – the 5/1 ARM – offers five years of fixed interest before adjustment. If you took out one of these variable rate loans to finance your home purchase, you might consider refinancing yourself to a more stable fixed rate loan now that rates are rising.
How far will mortgage rates go this year?
Around the same time last year, the 30-year average fixed mortgage rate fell to an all-time low.
âSince then, despite the effects of the delta and omicron variants, the labor market has created more than 6 million jobs, the economy is expanding and the housing market continues to outperform,â explains Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors.
In addition, the Federal Reserve is slowing its recent frenzy of Treasury bond and mortgage-backed securities buying, and the central bank predicts it will hike interest rates three times this year.
All of these factors drive up interest on treasury bills. The bond market, which often portends the direction of mortgage rates, signals that mortgage rates will continue to climb, Evangelou said.
The professional real estate group expects the 30-year average mortgage loan to be at least 3.7% by the end of the year. Another industry giant, the Mortgage Bankers Association, expects the 30-year rate to hit 4% by the end of 2022, with further increases coming next year.
How to find low mortgage rates in 2022
If you’re ready to jump into the mortgage portfolio before it gets too cold, you’ll just want to do a little warm-up to make sure you get the best rate. Studies by Freddie Mac and others have shown that comparing offers from at least five lenders can maximize your savings on a refi.
Shopping around is essential, but so is a strong credit history. Review your credit score, which you can easily do for free. If your score is lower than you hoped for, you might want to work on it before you reveal it to tough lenders.
If you’ve racked up significant debt during the pandemic, you may want to consider turning those credit balances into a low interest debt consolidation loan – to lower your interest charges and potentially eliminate your debt faster.
If mortgage refinancing isn’t an option, there are other ways to lower the cost of homeownership. When the time comes to purchase or renew home insurance, a little comparison can help you find a lower rate for your coverage.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.