Inflation pushes mortgage rates up to 3.85%. Experts warn borrowers not to panic: “Historically, rates are still quite low.

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Inflation continues to reach levels not seen in 40 years, and mortgage rates are rising with it.

The 30-year fixed rate average rose to 3.85% – its highest level since March 2020 – while the latest figures from the Bureau of Labor Statistics on Thursday showed inflation of 7.5% year-on-year in January. This is the highest in 40 years.

“It’s one word: it’s inflation,” says Rob Cook, vice president of marketing, digital and analytics at Discover Home Loans.

Persistently high inflation will cause the Federal Reserve to raise its benchmark short-term interest rate, which will increase costs for lenders, who will pass these costs on to borrowers in the form of higher interest rates, a said Cook.

Mortgage markets have likely already priced in some of the expected increases caused by Fed moves, says Shashank Shekhar, founder and CEO of InstaMortgage. “If we get a lower inflation rate, if we get any indication that we may not get four rate increases this year, that could benefit mortgage rates,” he says.

Employment figures are another big driver of inflation. Last week, the BLS reported that the economy added 467,000 jobs in January, with an unemployment rate of 4%. This was not expected after the economic shocks of the pandemic, Shekhar says.

“We really haven’t paused on news impacting mortgage rates over the past three months,” Shekhar says.

Although the rates have gone up a bit over the past few months, they’re still not very high when you take a broader view, Cook says.

Borrowers shouldn’t panic, he says. “Historically, rates are still quite low.”

About the latest mortgage rates

Unless otherwise noted, mortgage rate data in this story is based on mortgage rate information provided by national lenders to Bankrate.com, which, like NextAdvisor, is owned by Red Ventures.

Mortgage rate forecast for February 2022

Experts told us they expect mortgage rates to continue to climb towards 4% in February, with some volatility. From week to week, they might jump up and down, but they usually won’t move as fast throughout the year as they did in those first few weeks, Ali Wolf said. , chief economist at Zonda, a California-based housing data and advisory firm. solidify. “We don’t expect a straight line for mortgage rates,” she told us.

When it begins raising interest rates, expected in March, the Federal Reserve will also need to consider the overall health of the financial system, including the housing market, Mark Vitner, senior economist at Wells Fargo, told us. “They don’t want to create instability in the financial markets just to bring down inflation.”

The highs and lows of the average 30-year fixed mortgage rate

Here’s a look at how current mortgage rates compare to past years, as well as the rate of inflation and national house prices for each year.

2019 2020 2021 2022 (until February 10)
Highest 30-year fixed mortgage rate 4.05% 3.88% 3.34% 3.85%
Lowest 30-year fixed mortgage rate 3.74% 2.95% 2.93% 3.4%
Inflation rate 2.3% 1.4% seven% 7.5%
Median Home Selling Price $274,600 $300,200 $353,400 N / A
* Data from the National Association of Realtors on sales of existing single-family homes.

Last week’s 3.85% rate is the highest 30-year fixed rate since before the pandemic, but it’s on par with rates in 2019, which was another good year for mortgage rates.

What Other Mortgage Industry Data Shows

There was a big jump in a similar survey from Freddie Mac, which saw the average 30-year fixed rate hold rise 14 basis points to 3.69%. The Freddie Mac survey hasn’t seen such a high average since January 2020.

Freddie Mac is a government-sponsored entity that buys mortgages on the secondary market. Its survey methodology and the period over which it collects data differs from others, such as the Bankrate survey referenced in this article. Although different mortgage rate averages vary, they show similar trends over time.

What the Latest Mortgage Rates Mean for New Homebuyers

Rising interest rates can reduce your purchasing power when shopping for a home. Shekhar warns buyers to double-check a lender‘s pre-approval letter, saying it’s often a certain payment, not a certain loan amount. “When rates suddenly go up like rates have, you need to go back to your loan officer and have the pre-approval letter checked,” he says.

Home prices also continue to rise, creating a “double whammy” for homebuyers, Shekhar says. It doesn’t necessarily mean fewer buyers either. “Sometimes rising rates actually bring more buyers into the market than the other way around,” he says. “They think because rates are rising, we should buy as soon as possible.”

Prospective buyers should be sure to keep tabs on their potential monthly payments, Cook says. “Borrowers should really look at their finances and recalculate based on how much home they can afford.” Try your estimates in NextAdvisor’s mortgage calculator to see what your payment might look like.

Don’t let interest rates play too big a role in the home buying decision. Rates are still near all-time lows, and waiting to see if prices go down could be pointless. Don’t try to time the market just to get a better interest rate, it’s “a cup game,” Tendayi Kapfidze, head of economic analysis at US Bank, told us.

What the latest mortgage rates mean for existing homeowners

Despite rising interest rates, it may still be a good idea to refinance your existing mortgage. If you have gone through the last few years without refinancing, you could hold a loan with a rate that is significantly higher than the rates of almost 4% available on the market today. In this case, it might make sense to refinance, especially if you can get a lower rate of at least 0.75%.

That’s not the only situation where refinancing makes sense, Shekhar says. You might want to consider refinancing if it helps you get rid of FHA mortgage insurance, especially given rising home values, he says. You may also want to switch from an adjustable rate mortgage to a fixed rate mortgage to get a low rate. A cash refinance can also help pay off higher interest rate debt, such as credit card debt.

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