It’s a new year which means predictions for the year ahead are in full swing. From rising and falling home prices to fluctuating mortgage interest rates, the housing market is seeing changes in 2022. Since January 1, mortgage interest rates have increased slightly from 3.26% to 3.27%, a movement that is consistent with what has been forecasted for months. This slight increase in conjunction with COVID-19 and the economy has many people wondering how this interest rate increase will affect the 2022 housing market.

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Why a Mortgage Rate Increase Now?

In December 2021, the Federal Reserve announced they will slow down their bond purchasing program considering elevated inflation and the strengthening labor market. The mortgage rate increase correlates with the national economic recovery efforts. Lawrence Yun, National Association of Realtors (NAR) Chief Economist and Senior Vice President of research predicts that the 30-year mortgage interest rate will rise to 3.5% in 2022.

While the Federal Reserve does not directly dictate the current mortgage interest rate, what they say about inflation and the health of the U.S. economy has an impact on the terms and rates for mortgages. Mortgage interest rates have been at historical lows due to the coronavirus pandemic which leads many to question how new variants will impact the outlook.

Predictions in December foreshadowed increased rates and volatility going into the new year, and that’s largely proven to be the case. How fast or slow these rates increase is mainly dependent on the economy. While interest rates are expected to increase it should be more gradual than a shocking skyrocket. While COVID-19 still does have an impact on the economy, the effects are not as drastic as they were in the early days of 2020.

Effects for Borrowers

In January 2021, the average 30-year mortgage rate was around 3%; in 2020, it was 3.86%, a significant difference from where we are today.

Existing Homeowners

  • For existing borrowers, choosing to refinance your mortgage for a lower interest rate may be worth considering, especially if it is .75% to 1% lower than your current rate. Reduced interest rates will reduce your monthly payments as well as the interest owed over the life of the loan.

New Buyers

  • While 2022’s market is predicted to finally cool, the housing prices are still higher than pre-pandemic prices. While a lower mortgage rate can help alleviate some of the down payment expenses, a large home loan may overshadow some of the potential savings from the decreased rate. The time to enter the market is solely up to you and your personal finances.

Whether you’re purchasing or refinancing, understanding the current mortgage interest rates and their effects on the housing market allows you to make an educated decision about what is right for you and your financial situation. If you’re interested in learning more about purchasing or refinancing your mortgage, contact Metropolitan Title today.


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