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Mortgage rates have been increasing over the past couple of months after briefly dropping this summer.
Rates have increased over three percentage points so far this year. On Thursday, Freddie Mac announced that the average 30-year fixed rate hit 6.92%, its highest level since 2002.
“We continue to see a tale of two economies in the data: strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “The next several months will undoubtedly be important for the economy and the housing market.”
Mortgage rates have trended up as the Federal Reserve has signaled it will continue hiking the federal funds rate until inflation comes down. So far, prices have remained stubbornly high.
Until inflation shows sustained signs of slowing, the Fed is likely to continue hiking rates at an aggressive pace. More hikes mean mortgage rates will likely remain elevated for the foreseeable future.
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Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.
Are mortgage rates going up?
Mortgage rates started ticking up from historic lows in the second half of 2021 and have increased significantly so far in 2022.
In the last 12 months, the Consumer Price Index rose by 8.2%. The Federal Reserve has been working to get inflation under control, and plans to increase the federal funds target rate two more times this year, following increases at its last five meetings.
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 do high rates mean for the housing market?
When mortgage rates go up, home shoppers’ buying power decreases, as more of their anticipated housing budget has to go toward paying interest. If rates get high enough, buyers can get priced out of the market completely, which cools demand and puts downward pressure on home price growth.
So far this year, home prices have overall increased, but at a slower pace than in previous years.
What is a good mortgage rate?
It can be hard to know if a lender is offering you a good rate, which is why it’s so important to get preapproved with multiple mortgage lenders and compare each offer. Apply for preapproval with at least two or three lenders.
Your rate isn’t the only thing that matters. Be sure to compare both what your monthly costs would be as well as your upfront costs, including any lender fees.
Even though mortgage rates are heavily influenced by economic factors that are out of your control, there are some things you can do to help ensure you get a good rate:
Consider fixed vs. adjustable rates. You may be able to get a lower introductory rate with an adjustable-rate mortgage, which can be good if you plan to move before the intro period ends. But a fixed rate could be better if you’re buying a forever home because you won’t risk your rate going up later. Look at the rates your lender offers and weigh your options.Look at your finances. The stronger your financial situation, the lower your mortgage rate should be. Look for ways to boost your credit score or lower your debt-to-income ratio, if necessary. Saving for a higher down payment also helps.Choose the right lender. Each lender charges different mortgage rates. Picking the right one for your financial situation will help you land a good rate.