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Mortgage rates have been slowly increasing this week. Inflation is still hot and the labor market remains tight, which means mortgage rates are likely to remain elevated for the rest of 2022.
In two weeks, the Federal Reserve will meet to discuss another hike to the federal funds rate, and markets largely expect the Fed to opt for another extra-large increase. The CME FedWatch Tool currently has the likelihood of a 75-basis-point hike at 97%.
Mortgage rates aren’t directly impacted by the federal funds rate, but they can trend up or down based on how investors expect Fed policy to impact the broader economy.
Until inflation shows sustained signs of cooling, the Fed will likely continue hiking rates.
As rates remain elevated, it’s important for borrowers to shop around and get preapproved with multiple mortgage lenders to get an idea of who can offer them the best deal.
One area of the economy that has been slowing is the housing market, which may prove to be somewhat of a silver lining for buyers, as high rates put downward pressure on homebuying demand and reduce competition for those who can afford to remain in the market.
Fannie Mae’s latest Home Price Index reading found that home prices rose just 0.2% in Q3 of this year, the slowest quarterly growth rate since 2011.
“In addition to the greater affordability constraints for potential homebuyers, many existing homeowners likely feel ‘locked-in’ to their existing, lower interest-rate mortgages,” Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a press release. “This contributes to fewer homes being listed, as well as fewer potential buyers, and may lead to a growing share of listings having to cut prices to meet the reduced demand.”
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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 6.92%, according to Freddie Mac. This is the highest this rate has been since 2002.
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 6.09%, an increase from the prior week, according to Freddie Mac data. This is the first time this rate has surpassed 6% since 2008.
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 5.81%, 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 two more times in 2022, 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 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.