If you are planning on purchasing a home this year, you’re probably looking for information on how or if interest rates will change. You should consider the 2022 mortgage interest rates forecast if you’re like many others who are curious about what will happen to interest rates.
Higher interest rates are already affecting current homeowners and future homebuyers. The biggest difference noticed was applications to refinance fell more than 70% when compared to the same week in the previous year. Previously, refinancing numbers have been higher than purchases, but at the beginning of March things headed in the other direction and now refinancing represents less than half of the interest in applications. Fewer homeowners can benefit from refinancing now that 30-year interest rates have surpassed 5%. Even though many times interest rates are the main factor in the decision to refinance, you can delay paying interest when purchasing a home. Interest rates are just one of the many factors to consider when purchasing a home. Surprisingly more and more people are turning to adjustable-rate mortgages as an option.
Potential buyers may be choosing ARMs, which often have the advantage of lower introductory rates, to return the buying power that increasing interest rates on fixed-rate loans have destroyed.
It’s expected that the Federal Reserve could increase the federal funds rate by approximately another half percent. Markets are preparing for even higher interest rates in the coming weeks.
Factors Affecting Mortgage Rates
There are several aspects that affect mortgage rates. Personal circumstances, global events, financial conditions, inflation, the Federal Reserve, and bond prices can become factors.
Inflation
Mortgage rates and inflation coincide with each other. Usually, when there is an inflation increase, interest rates as well to keep up with the value of the dollar. However, when inflation decreases, mortgage rates also drop. Mortgage rates typically remain steady during spans of low inflation.
Global Events
Throughout history global events such as World War II, the oil crisis of the ‘70s and ‘80s, the housing market collapse in 2007 (which triggered a global recession), and Brexit impact interest rates. Current world events, such as the COVID-19 pandemic and Russia’s war in Ukraine, continue to affect mortgage interest rates.
Economic Crises
Interest rates tend to decrease early in a recession and generally increase as the economy improves. As an example, during a recession, if you borrow an adjustable-rate loan (ARM) the interest rate will probably rise when the decline ends.
Personal Factors
Your employment status, income, the amount you plan to borrow, your debt -to-income-ratio, your repayment term, and credit score are all personal factors that are taken into consideration by lenders when determining your mortgage interest rate.
The Federal Reserve
The Federal Reserve either increases or decreases short-term interest rates based on the economy to curb funds. When the Fed makes the decision that it’s time to control the money supply, they increase interest rates on borrower financing, which includes mortgage rates. When the Federal Reserve makes it more costly for banks to borrow because of a higher federal funds rate, the banks in turn pass the higher costs on to customers.
Bond Prices
Mortgage interest rates and bond prices complement each other. When one goes up, the other goes down. Mortgage lenders also study the 10-year treasury rates closely.
On a 30-year mortgage, the average rate increased approximately one percentage point in March. This is a sharp climb that impacted buying power. Rising mortgage rates affect what home buyers can afford. For example, someone who can afford $1,100 a month in principal and interest can manage to borrow $230,400 with a 4% interest rate. However, when the rate rises to 5%, the same buyer can only manage to borrow $204,900. That’s a $25,500 difference in buying power, solely because the interest rate increased by one percent.
Mortgage interest rate forecasting is experts anticipating how interest rates will rise or fall over time. Mortgage rates will probably continue to rise for the remainder of 2022.
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