If you’re in the market for a new home now or are hoping to buy later this spring, you might be starting to panic: Mortgage interest rates are on the rise.
This means for the same size loan, borrowers will have to pay a higher monthly mortgage -- that’s prompting many homebuyers to feel as if they need to buy as soon as possible.
This panic is further intensified by the rising cost of real estate due to low housing inventory. The median home price nationwide is hovering 10% higher than a year earlier, at $375,000.
It’s a hard time to be a homebuyer, but if your palms are getting sweaty just thinking about what you’ll face when you apply for a loan, it’s time to take a breath and get realistic answers to the questions swirling in your head. For example: How quickly will interest rates rise, and how high will they go?
First, a quick lesson to understand what’s going on: At the end of January, the Federal Reserve— the agency tasked with preserving the health of the U.S. economy—announced that it would be raising its interest rates in mid-March.
So, what does that mean? Mortgage rates usually follow the trend of the 10-year Treasury yield, and though the Fed doesn’t set mortgage rates, the short-term interest rate that the Fed sets will trigger a higher rate for banks, translating into higher prices for home buyers.
The Fed is planning a number of interest rate hikes throughout the year, and that has caused mortgage interest rates to creep up fast in 2022 than economists expected.
But before you panic, consider that even current mortgage rates are at near historic lows.
Still, since a half-point in interest can still add up to a decent chunk of change over the life of a loan, and homebuyers may want to get moving on their house hunt sooner rather than later.