Mortgage rates start the year higher but remain historically low — for now

Mortgage rates start the year higher but remain historically low — for now
Mortgage rates start the year higher but remain historically low — for now

Average mortgage rates inched higher at the end of the 2021, and more increases are likely to greet borrowers in the new year, according to a popular survey.

The COVID-19 pandemic, which is going on its third year, continues to wreak havoc on the economy, with the omicron variant now tearing through the country. While the economic fallout might normally lead to lower borrowing costs, mortgage rates are expected to keep heading north.

Procrastinating homeowners who've made New Year's resolutions to finally get around to refinancing will want to do that before today's historically low mortgage rates are history.

30-year fixed mortgage rates

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The interest rate on a 30-year fixed-rate mortgage rose an an average 3.11% last week, from 3.05% a week earlier, mortgage giant Freddie Mac is reporting.

One year ago, 30-year fixed mortgages were averaging just 2.67%, on the way to a record low early in 2021. Rates remained relatively low throughout most of last year, but then started to climb in the fall and have stayed a little above 3% since mid-November.

“Mortgage rates have effectively been moving sideways despite the increase in new COVID cases. This is because incoming economic data suggests that the economy remains on firm ground, particularly cyclical industries like manufacturing and housing,” says Sam Khater, Freddie Mac’s chief economist.

“While we do expect rates to rise, the push of the first-time homebuyer demographic that’s been propelling the purchase market will continue in 2022 and beyond.”

15-year fixed-rate mortgages

The average interest rate on a 15-year fixed-rate mortgage climbed to 2.33% last week, up from the previous week when it averaged 2.30%, Freddie Mac says. A year ago at this time, the 15-year loan was averaging 2.17%.

The shorter-term home loans are popular with homeowners refinancing out of 30-year mortgages. With a 15-year loan, borrowers will pay much less in interest costs over the life of their loan, but their monthly payments will likely be higher.

Industry insiders seem to be in agreement on where rates are heading.

Freddie Mac's forecast calls for 30-year mortgage rates to hit an average 3.7% by the end of 2022, but the Mortgage Bankers Association — the nation’s largest mortgage industry trade group — predicts rates will go to 4%, with further increases likely in 2023.

5-year adjustable-rate mortgages

Rates on five-year adjustable-rate mortgages — or ARMs — ended the year averaging 2.41%, up from 2.37% a week earlier, Freddie Mac says. The rates are way down from a year ago, when the typical five-year ARM was at a much steeper 2.71%.

The interest rates on adjustable-rate home loans can go up or down after a period of time, based on the performance of a particular benchmark like the prime rate.

When rates are rising, many borrowers refinance their ARMs into more stable fixed-rate loans.

Why rates will rise

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Mortgage rates typically follow the yield — or interest — paid on government bonds.

Last week, the yield on 10-year Treasuries surpassed 1.5% for the second time in December, notes Danielle Hale, chief economist of

“Investors have reacted with increasing optimism following initial caution in response to the emergence of the omicron variant, even as case counts grow," Hale says. “If higher rates in long-term Treasuries can be sustained, which will likely require stable or improving news around omicron and COVID, that will mean higher mortgage rates for homebuyers."

Changes in Federal Reserve monetary policy also are likely to lead to higher rates. November's 6.8% inflation rate — which was the highest in nearly 40 years — has prompted the Fed to more quickly wind down its pandemic policies that have kept rates low.

“Inflation is here to stay for much of 2022 and potentially a little bit beyond so it’s fair to say that mortgage rates are going to trend a little bit higher into [2022],” Arjun Dhingra, a San Francisco-based mortgage banker, said on the latest episode of The Mortgage Reports podcast.

How to get the lowest mortgage rate you can

Payday. Concentrated attentive millennial spouses sitting on couch at home discussing possibility of taking out a refinance mortgage loan.
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If you look around, you can easily find a 30-year refi mortgage under 3%, or 15-year loans with rates around 2%. But those low rates could soon be history.

Whether you're a homebuyer, or a homeowner considering a cost-saving refinance of an existing mortgage, it may be time to lock in lock in a low rate.

Borrowers who refinanced into 30-year loans during the first half of 2021 have saved over $2,800 in mortgage payments annually, Freddie Mac research has found.

Whatever type of loan you’re shopping for, compare offers from at least five different lenders to secure the lowest rate for your area and for a person with your credit profile.

Before submitting your loan application, get a free peek at your credit score. Borrowers with the highest credit scores are typically offered the lowest rates, so you may need to work on improving your score before you start approaching lenders.

If gobs of high-interest debt are making it hard for you to find an affordable mortgage rate, you may want to roll those balances into a single, lower-interest debt consolidation loan. You’ll pay less in interest, eliminate your debt sooner and possibly free up some much-needed cash flow.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.