Mortgage rates have fallen slightly in recent days, but are still above 5%.
On Wednesday, the latest consumer price index data was released by the Bureau of Labor Statistics, showing that prices rose 8.3% year over year in April. This is a slight slowdown since March, when the CPI reached an annualized rate of 8.5%. The Federal Reserve has already raised Federal Funds interest rates twice this year to calm this high inflation, and mortgage rates have risen as a result.
Even though rates have gone up, that doesn’t necessarily mean it’s a bad time to buy a home. Depending on where you live, buying a home may be a better deal than renting.
“I still believe we’re in a market that’s beneficial to buy or own,” said Ralph DiBugnara, president of Home Qualified and senior vice president of Cardinal Financial. “Higher rates mean less purchasing power in some cases, but rents are rising at the same rate or faster than house prices due to inflation, making buying the more ideal option for many.”
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Use our free mortgage calculator to see how current mortgage rates will affect your monthly and long-term payments.
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- pay a 25% higher deposit would save you! $8,916.08 on interest charges
- Reduction of interest by 1% would you save $51,562.03
- Pay extra $500 each month would reduce the length of the loan by 146 months
By entering different maturities and interest rates, you can see how your monthly payment might change.
Will mortgage rates go up?
Mortgage rates started rising from an all-time low in the second half of 2021 and are likely to continue rising in 2022. This is largely due to high inflation and the policy response to rising prices.
In the past 12 months, the consumer price index rose by 8.3%. The
has worked to bring inflation under control and plans to raise the federal funds target five more times this year, following a 0.25% increase at the March meeting and a 0.5% increase in May.
While not directly linked to federal fund rates, mortgage rates are often pushed up as a result of Fed rate hikes. As the central bank continues to tighten monetary policy to lower inflation, mortgage rates are likely to remain high.
What do high rates mean for the housing market?
When mortgage rates rise, home buyers’ purchasing power declines because a larger portion of their projected housing budget must be spent on paying interest. If rates get high enough, buyers could be priced out of the market entirely, cooling demand and putting downward pressure on home price growth.
However, that doesn’t mean house prices will fall — in fact, they’re expected to rise even more this year, just at a slower pace than what we’ve seen in recent years.
While high rates are slowing demand, low inventory will continue to push prices up, DiBugnara says.
“There is such a shortage that even if 50% of people stopped searching today, you would still be in high demand,” he says. “So I just think because of that demand, you’re going to see prices go up for at least another 18 to 24 months.”
What is a good mortgage interest deduction?
It can be difficult to know if a lender is offering you a good rate, which is why it’s so important to get pre-approved by multiple mortgage lenders and compare each offering. Request pre-approval from at least two or three lenders.
Your rate isn’t all that matters. Be sure to compare both your monthly fees and your initial fees, including any lenders.
While mortgage rates are heavily influenced by economic factors beyond your control, there are some things you can do to make sure you get a good rate:
- Consider fixed versus adjustable rates. You may be able to get a lower introductory rate with an adjustable-rate mortgage, which can be good if you plan to move before the introductory period ends. But a flat rate may be better if you’re buying a home forever because you don’t run the risk of your rate rising later. Look at the rates your lender offers and weigh your options.
- Look at your finances. The stronger your financial situation, the lower your mortgage interest rate should be. If necessary, look for ways to raise your credit score or lower your debt-to-income ratio. Saving for a higher down payment also helps.
- Choose the right lender. Each lender charges different mortgage interest rates. By choosing the right one for your financial situation, you can get a good rate.