Will Mortgage Rates Go Up in 2022?

Thinking about buying a home in 2022? If so, you may be keeping a close eye on current mortgage rates. It can be hard to predict how rates will change in a given year, and rates alone aren’t the only thing to consider when buying a home, but they do have an impact on your finances.

If you have excellent credit, you may be able to secure an excellent rate on your mortgage. This will allow you to pay less interest on your loan and build equity in your home faster.

Here’s what you need to know about mortgage rates in 2022.

Mortgage Rates in 2022

Currently, most experts predict that mortgage rates will increase slightly in 2022

According to Time, the primary causes of the increase are high inflation and increasing housing prices. The Mortgage Bankers Association, an industry trade group, expects the 30-year fixed mortgage rate to rise to 4% by the end of 2022, Fortune reported.

Nonetheless, rates haven’t increased significantly yet, and they are still at historical lows. According to Freddie Mac, “Economic data suggest the economy remains on firm ground, particularly cyclical industries like manufacturing and housing. Moreover, low-interest rates and high asset valuations continue to drive consumer spending.”

(Source: Freddie Mac—retrieved on January 4th, 2022)

There’s still some uncertainty in the market due to the pandemic. The Omicron variant has shown itself to be particularly virulent, but experts believe it may not be as deadly as previous variants of COVID-19. 

Keep in mind that financial experts can only make predictions based on the market data they have on hand, and they aren’t always right. Unlike interest rates with the Federal Reserve, mortgage rates aren’t controlled by any single entity or factor. 

Many different factors influence mortgage rates, and no analyst can accurately predict how all of them will play out in a year.

What Drives Mortgage Rates?

Most of the factors that drive mortgage rates are outside of our direct control, but not all. Here are some factors to consider.

Your Credit History

Most mortgage rate estimations assume that the borrower has excellent credit and can get the lowest possible rate. If you see an estimate for a 3% mortgage rate, you might not get that rate if your credit is poor.

But if you pay your bills on time, keep your credit card usage low, and have a high credit score, you can secure a low rate for your mortgage. This is particularly important when rates are generally high.

Your credit history is one of the only factors within your control that impacts your mortgage rate. If you haven’t done so yet, obtain a free copy of your credit report to determine if you’re in a good position to apply for a mortgage.

The Housing Market

Since the start of the pandemic, the housing market has struggled with low supply and high demand. This has caused an increase in housing prices, as sellers can generally get multiple offers in a relatively short period and pick the best one.

Still, many sellers aren’t selling because they recently took advantage of low-interest rates to refinance their mortgages.

U.S. News & World Report claims experts expect housing prices to continue rising in 2022 due to high demand and low supply.

Inflation

Inflation refers to the increase of the cost of goods in services in an economy, and thus the devaluation of the economy’s unit of currency. Inflation is inevitable, but it occurs at varying speeds over time due to market factors.

Inflation has risen in recent months and has become a central issue in the news cycle. Rises in inflation can cause disruptions in the market and reduce investor confidence. It can also impact interest rates, as the Federal Reserve will generally raise interest rates to reduce inflation—essentially, they make it more expensive to borrow money to ensure the money itself doesn’t lose value too quickly.

Raising the interest rate won’t directly impact mortgage rates, but the two typically trend together due to broader economic factors. 

Economic Growth

As we noted, the economy is doing generally well despite the ongoing pandemic. According to Marketplace, experts believe consumer confidence and spending will continue increasing in 2022: “Even in the worst parts of the pandemic, we know that people kept buying stuff—in particular electronics, appliances, and home goods.”

When the economy does well, mortgage rates tend to go up. Lenders typically want to take advantage of the high demand to secure better returns on their loans.

The Bond Market

Finally, you can also consider how banks, lenders, and investment companies are planning to make money from mortgage-backed securities (MBSs) as investment products.

These investment products compete with government bonds, specifically the 10-year Treasury bond. Government bonds don’t offer yields as high as MBSs, but they are generally less risky for investors. 

When the economy is doing well, investors tend to take more risks, so investors may continue to put money into MBSs. Banks and investment companies typically increase mortgage rates only when interest in low-risk Treasury bonds outcompete MSBs.

Reach Your Homebuying Goals with GoldCoast Mortgage

Your potential mortgage rates are only one factor to consider if you want to buy a home in 2022. The good news is that mortgage rates are expected to stay at historical lows, even if they do increase somewhat this year.

Even if mortgage rates do hit 4% by the end of the year, consider that the average mortgage rate hit 18.5% in 1981.

The biggest challenge in buying a home right now is perhaps competing with other buyers for a low supply of homes. If you’re thinking about buying real estate in Massachusetts, GoldCoast Mortgage can guide you towards a mortgage that helps you make a competitive offer and achieve your goals. 

Contact GoldCoast Mortgage today to find out how we can help.