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Mortgage rates have risen over a full percentage point in the span of just six weeks, and they’re now slated to surpass the levels many forecasts had expected them to reach.
In its latest housing forecast released in August, Fannie Mae predicted that 30-year fixed mortgage rates would reach an average of 5.1% in Q3 of 2022 — but with just two weeks left in the quarter, this rate is already at a quarterly average of 5.46%, according to Freddie Mac data. Fannie Mae also forecasted an average rate of 4.8% in the fourth quarter of this year, but with rates already up past 6% and showing no signs of easing, they’ll likely miss this prediction as well.
Freddie Mac’s forecast of 5.5% for Q3 is more in line with current expectations, but rates will likely exceed its Q4 forecast of 5.4%. The Mortgage Bankers Association forecasted a Q3 average of 5.3% and a Q4 average of 5.2%.
Prior to this most recent surge, mortgage rates had been falling, and reached a low of 4.99% in early August. But as economic data has continued to show a strong labor market and inflation still running hotter than expected, the Federal Reserve has taken a more aggressive stance, promising to raise the federal funds rate until inflation shows sustained signs of slowing. This caused mortgage rates to spike.
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Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments.
By clicking on “More details,” you’ll also see how much you’ll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.
30-year fixed mortgage rates
The current average 30-year fixed mortgage rate is 6.02%, according to Freddie Mac. This is the highest this rate has been since 2008, and the fourth week in a row it’s increased.
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 5.21%, an increase from the prior week, according to Freddie Mac data. The last time this rate was above 5% was in 2009.
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 4.93%, an increase from the previous week.
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 has begun to reduce the assets it holds and is expected to increase the federal funds rate three more times in 2022, following increases in March, May, June, and July.
Though not directly tied to the federal funds rate, mortgage rates are sometimes pushed up as a result of Fed rate hikes and investor expectations of how those hikes will impact the economy.
Inflation remains elevated, but has started to slow, which is a good sign for mortgage rates and the broader economy.
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.