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Rates for home loans are caught in a tug-of-war between rising inflation and the Federal Reserve’s actions to restrain inflation which has indirectly pushed rates higher.
The Federal Reserve began hiking its benchmark interest rate in March and then in June, it raised the rate by 75 basis points—the largest increase since 1994—only to repeat that step again in July and September.
“The Fed has reiterated its commitment to keeping the monetary tightening course, warning that consumers and businesses can expect more ‘pain’ ahead,” says George Ratiu, Realtor.com’s director of economic research. This means that rates will likely continue to undergo upward pressure in the upcoming months—or at least until inflation is moderated.
“While rates in the 7% range were [nearly unthinkable in August], with the 10-year Treasury touching 4% this week, we can expect rates to move in the [6.5% to 8% range] through the remainder of the year,” Ratiu says.
But not everyone thinks market conditions will get so extreme in the last months of 2022, as seen in the variety within the following commentary from housing experts:
- Mortgage Bankers Association (MBA): We forecast the “average at the end of [the fourth quarter to be] 5.5%. [We’re] still anticipating a lot of volatility.”
- Keller Williams Chief Economist Ruben Gonzalez: “The Federal Reserve will continue to ratchet up the federal funds rate to slow inflation, and if the Reserve’s approach becomes more aggressive, we will see mortgage rates increase even further. Rising mortgage rates have continued to slow housing market demand, resulting in slowing sales and slower home price appreciation.”
- National Association of Realtors (NAR) Chief Economist Lawrence Yun: “The ongoing stubbornly high inflation has forced the Federal Reserve to take significantly more aggressive measures. As a result, the benchmark 10-year Treasury yield has broken out to 4%. In addition, the holdings of mortgage-backed securities at the Fed are getting trimmed. Mortgage rates could be knocking at 7%.”
- Fannie Mae: Forecasts a 5.7% rate in the fourth quarter.
Is There Still Time To Refinance?
Americans watch mortgage rates closely, and any time rates pull back even the slightest amount, more people apply for mortgages. With rates still substantially higher than a year ago, however, applications remain stuck near the lowest level in more than two decades, according to MBA data.
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 additional 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 that 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 mortgage rate for a 30-year fixed is 7.31%, more than double its 3.22% level at the start of the year.
The average cost of a 15-year, fixed-rate mortgage has also surged to 6.49%, compared to 2.43% in early January.
In the current environment, adjustable-rate mortgages may be more affordable than those with fixed rates. The average 5/1 ARM was 5.45% at the end of September.
Current Mortgage Interest Rates for October 2022
