Although the low mortgage rates for the last year have provided some financial relief to homeowners in hot housing markets, that trend is unlikely to continue into 2022.

The mortgage rates have risen steadily from 2.67% in January 2021, to 3.12% mid-December. According to data from Freddie Mac, they have remained within the historic low 3% range all year.

As we enter the new year, however, mortgage rates face serious challenges. These include skyward inflation and plans by the Federal Reserve to raise the federal funds rate and reduce asset purchases. All of these could lead to higher mortgage rates. The consumer price index (CPI) measures inflation by examining the cost of consumer goods. It rose 6.8% in the 12-months ended November. This is the largest jump in a single-year period since June 1982.

For 2022, Mortgage Rates to Expect

Many housing experts believe that inflation and Fed’s acceleration of asset-purchase tapering are sure signs of higher mortgage rates. These rates will range from the upper 3% to the upper 4% by 2022. Here are some predictions by market experts.

Other are looking at Treasury yields as a sign that rates might not rise as much as widely expected.

Danielle Hale is the chief economist of Realtor.com. She expects rates will rise by about half a point to 3.6% in 2022. This jump “is not big enough to disrupt market.”

Robert Frick, Corporate Economist at Navy Federal Credit Union, stated that mortgage rates are closely linked to the 10-year Treasury yield and are not expected to rise much in next year. However, rates could rise slightly, but they are likely to stay below 3.5%.

Is it a good time to refinance now?

The number of borrowers refinancing mortgages has declined as rates continue rising. Black Knight, an analytics firm that specializes in real estate data, reported that the market’s overall refinance share was at 45% as of October. This is the lowest level since June 2021.

Refinancing may be a more attractive option for many who have just purchased a home in the past few years, as rates are expected to rise once again in 2022.

It’s not possible to predict the market. However, homeowners who are able to reduce their interest rates by refinancing may want to move sooner than others.

Refinancing can result in a lower monthly repayment, but not all options will pay less over the loan’s life. 

It is also important to think about how long you intend on staying in your house. If you decide to sell your home soon after refinance, the closing costs could eat into your savings. Refinance closing costs can range from 2% to 5% depending on which lender you use. You should make sure that your home is kept for as long as possible to pay those costs and to reap the benefits of refinancing at lower rates.

Remember that your eligibility for depends on many factors, including credit score, debt to income (DTI), loan-to value (LTV), and steady income.

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