The cost of lending is rising as mortgage rates continue to shoot up—and that will impact the bottom lines of homeowners and borrowers alike. Mortgage rates are more than two percentage points higher than at the start of the year, after registering the biggest quarterly climb in 28 years in the first quarter. That means anyone hoping for rates to fall may be waiting for a while.
Rising inflation is one reason rates are expected to climb. In May, the consumer price index (CPI) rose 8.6% compared to a year ago, its highest level since 1981. Another catalyst has been the Federal Reserve. The central bank started hiking the benchmark interest rate in March, and more recently raised rates 75 basis points—the biggest such increase since 1994.
“Only when inflation calms down will mortgage rates also begin to stabilize,” says Lawrence Yun, chief economist for the National Association of Realtors (NAR).
Rates for a 30-year fixed-rate mortgage have already surged to 5.7% as of June 30, up from 2.98% a year ago, according to Freddie Mac.
Rising inflation and the Federal Reserve’s monetary policy are all putting pressure on mortgage rates. As inflation increases, the Fed reacts by applying more aggressive monetary policy, which invariably leads to higher mortgage rates.
Experts are forecasting that the 30-year, fixed-mortgage rate will vary from 5% to 7% by the end of 2022. Here are their more detailed predictions, as of late May 2022:
- Mortgage Bankers Association (MBA) Associate Vice President of Economic and Industry Forecasting Joel Kan: “High inflation and rates above 5% are both headwinds for the housing market in the coming months. MBA’s new forecast anticipates that sales of new and existing homes will fall below 2021 levels.”
- National Association of Realtors (NAR) Chief Economist Lawrence Yun: “Mortgage rates bouncing along near 6% is certain for the remainder of the year. They could go up even close to 7%, especially if oil and gas supply further lags behind and pushes up the critical energy prices during the winter heating season.”
- Realtor.com Chief Economist Danielle Hale: “I expect mortgage rates to move toward 5.5% by the end of 2022.”
- Zillow Vice President of Capital Markets Paul Thomas: “Given current conditions and Federal Reserve guidance, mortgage rates are not likely to decline significantly in the near term.”
Is There Still Time To Refinance?
With mortgage rates quickly rising, homeowners are racing to save money on refinancing. Currently, the average rate on a 30-year fixed mortgage is hovering around 5.7%. This leaves barely half a million homeowners able to refinance their mortgage, according to Black Knight, a data analytics company.
Each time rates inch up, fewer borrowers will be able to save money by refinancing.
Black Knight defines refinance-eligible borrowers as having a minimum of 720 credit scores, 20% equity in their home and the ability to shave off at least 0.75% of their interest rate by refinancing into a 30-year fixed mortgage.
Number of Eligible Refinance Candidates Based on Interest Rates
While refinancing options can lead to a lower monthly payment, not all of the options yield less interest over the life of the loan. For example, refinancing from a 5% mortgage with 26 years left on it to a 4% rate, but for 30 years, will cause you to pay more than $13,000 in interest.
Before you start shopping around for a lender, you can find out how much you could save by using a mortgage refinancing calculator.
You’ll also want to consider how long you plan on staying in your home as the closing costs can eat up your savings if you sell shortly after refinancing. The closing costs to refinance run between 2% to 5% of the loan amount, depending on the lender. So you should plan on keeping your home long enough to cover those costs and realize the savings from refinancing at a lower rate.
Keep in mind, the rate you qualify for also depends on other factors such as your credit score, debt-to-income (DTI) ratio, loan-to-value (LTV) ratio and proof of steady income.
Current Mortgage Rate Trends
The average weekly mortgage rate for a 30-year fixed has jumped to 5.7% as of June 30, compared to just 3.22% at the start of the year.
The average cost of a 15-year fixed-rate mortgage has also surged: it’s up to 4.83% as of June 30, compared to 2.43% in early January.
Current Mortgage Rates for July 2022
Mortgage rates have stayed below 4% since 2019 but began surging beyond that mid-March, exceeding 5% since late April.
