After getting some temporary relief from record high rates in August, mortgage borrowers are once again dealing with rising rates.
Rates peaked in June, with the average 30-year fixed mortgage rate hitting 5.81% — the highest its been since 2008, according to Freddie Mac. Since then, rates had been trending down, reaching an average of 4.99% in early August. But now they’re on their way back up.
The Federal Reserve has indicated that it will continue to hike the federal funds rate until inflation drops to a more acceptable level. This has helped push mortgage rates up.
As mortgages get more expensive, many homebuyers have been forced to re-evaluate their budgets and look for ways to keep their monthly payments affordable.
“Now is the time to seriously consider looking at an adjustable-rate mortgage or an interest-only option to help keep monthly payments down and as the perfect bridge to buying a home today — with the firm expectation that mortgage rates will decline once inflation is tamed,” says Sarah Alvarez, vice president of William Raveis Mortgage. “Our team has a saying that ‘you marry the house but date the rate.'”
Taking on a mortgage where you pay less during your introductory period can help make homeownership more affordable when rates are high, but be sure you understand how the loan works and what the risks are. For example, if you’re unable to refinance out of an adjustable-rate mortgage before your rate resets, you could end up with a higher monthly payment.
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.
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.
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.
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:
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