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The average 30-year fixed mortgage rate increased to 6.92% this week, according to Freddie Mac. This is the highest this rate has been since 2002. Average 15-year fixed rates also surpassed 6% for the first time in 14 years.
On Thursday, the Bureau of Labor Statistics released its Consumer Price Index report for September. Prices rose 8.2% year-over-year last month, a very slight slowdown from August’s 8.3% rate, but still higher than expected.
This still-hot CPI report combined with last week’s strong jobs report all but ensures that the Federal Reserve will enact another extra large hike to the federal funds rate at its November meeting.
Rising inflation and hikes from the Fed have helped push mortgage rates up over three percentage points this year. With this latest economic data pointing to more Fed rate increases, mortgage rates are likely to remain elevated for the rest of this year and may not start to trend down until later in 2023.
The silver lining is that markets have already priced in expectations of more hikes, so while mortgage rates aren’t likely to fall, they also may not trend up much further.
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Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments:
By clicking on “More details,” you’ll also see how much you’ll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.
Are mortgage rates going up?
Mortgage rates started ticking up from historic lows in the second half of 2021 and have increased significantly so far in 2022.
In the last 12 months, the Consumer Price Index rose by 8.2%. The Federal Reserve has been working to get inflation under control, and is expected to increase the federal funds target rate two more times this year, following increases at its last five meetings.
Though not directly tied to the federal funds rate, mortgage rates are sometimes pushed up as a result of Fed rate hikes and investor expectations of how those hikes will impact the economy.
Inflation remains elevated, but has started to slow, which is a good sign for mortgage rates and the broader economy.
What do high rates mean for the housing market?
When mortgage rates go up, home shoppers’ buying power decreases, as more of their anticipated housing budget has to go toward paying interest. If rates get high enough, buyers can get priced out of the market completely, which cools demand and puts downward pressure on home price growth.
Home prices have continued to rise this year, just at a slower pace than what we’ve seen in the past couple of years.
What is a good mortgage rate?
It can be hard to know if a lender is offering you a good rate, which is why it’s so important to get preapproved with multiple mortgage lenders and compare each offer. Apply for preapproval with at least two or three lenders.
Your rate isn’t the only thing that matters. Be sure to compare both what your monthly costs would be as well as your upfront costs, including any lender fees.
Even though mortgage rates are heavily influenced by economic factors that are out of your control, there are some things you can do to help ensure you get a good rate:
Consider fixed vs. 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 intro period ends. But a fixed rate could be better if you’re buying a forever home because you won’t risk your rate going up 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 rate should be. Look for ways to boost your credit score or lower your debt-to-income ratio, if necessary. Saving for a higher down payment also helps.Choose the right lender. Each lender charges different mortgage rates. Picking the right one for your financial situation will help you land a good rate.