Mortgage rates remained relatively calm last week, with some small fluctuations. But larger changes in rates are still possible as investors try to predict the likelihood of a coming recession.
The Federal Reserve has been raising the federal funds rate to try to cool the economy, and some are worried it won’t be able to do so without inadvertently causing a recession. But the economy so far remains strong. In July, the unemployment rate dropped to 3.5% — a return to its pre-pandemic level.
Even with rates no longer spiking, home shoppers are still navigating a difficult market. Mortgages remain significantly more expensive than they were in 2021, and home prices are elevated.
“Prospective borrowers should speak with a knowledgeable mortgage lender to better understand how current rates and product options could impact their total buying power and longer-term financial goals,” says Steve Kaminski, head of US residential lending for TD Bank. “There are many factors to consider, such as current and projected capacity, down payment, loan options, and ultimately monthly payment.”
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Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
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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. More recently, rates have been relatively volatile.
In the last 12 months, the Consumer Price Index rose by 8.5%. The Federal Reserve has been working to get inflation under control, and plans to increase the federal funds target rate three more times this year, 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 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.
However, that doesn’t mean home prices will fall — in fact, they’re expected to rise even more this year, just at a slower pace than what we’ve seen in the past couple of 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.