The page on another calendar year has turned, and now is the time of year we traditionally make resolutions to get in shape, eat healthier or spend more time with friends and family.
One more thing to add to your list: Stop stalling and refinance your mortgage. That’s because rates are anticipated to go higher from their near-record lows in the coming month and beyond. Where will rates for the benchmark 30-year fixed-rate mortgage and its 15-year cousin land in January? Our experts at Stanford Mortgage chimes in below.
Temps drop while mortgage rates rise
It was a whirlwind end to 2021, from the pandemic to finances. Last month, the Fed suggested multiple rate hikes were coming in 2022 to fight rising inflation. It signaled that, beginning this month, it will trim its monthly buys of Treasury securities and monthly mortgage-backed securities by $20 billion and $10 billion, respectively.
Coronavirus numbers continued their alarming climb amid concerning reports about the omicron variant spreading and vaccination booster rates lower than expected. And the Biden Administration’s Build Back Better legislation was dealt a possibly fatal setback.
All of these factors, and others, point to a higher rate climate in early 2022.
Inflation recently rose to its highest level since 1982 and history demonstrates that rising inflation causes the 10-year Treasury yield to drift up.
Higher inflation erodes the return that the investor of a bond or loan is holding over time, and bonds are not any more attractive to investors. This, in turn, makes bond values go down and yields rise. Consequently, mortgage rates move upward, as they are tied to the 10-year Treasury yield.
What’s more, the Fed cutting back its buying of bonds and mortgage-backed securities means that consumer mortgages currently sold to Fannie Mae and Freddie Mac will need to find other buyers – a strategy that will also contribute to higher mortgage rates.
With inflation elevated, mortgage rates have drift a bit higher in January, 30-year rates and 15-year rates to creep up to 3.875 percent and 2.99 percent, respectively, at this point.
New year, new opportunities
The moral of the story? Lock in a low rate now on a purchase or refi loan if you feel financially secure.
If you believe you are financially ready for homeownership, you should probably move as quickly as possible. Home prices have gone up 18 percent to 20 percent over the past year and are likely to continue to rise in 2022 – although at a slower pace. Combined with even a modest rise in interest rates, this can make it difficult for buyers – especially first-time purchasers – to be able to afford a home.
Don’t see any reason to hold off from purchasing or refinancing right now. Mortgage rates will continue to move upward.
Still, don’t feel pressured to make a move prematurely.
If you find yourself reaching the very limit of what you can afford, putting an offer in sight unseen or after only a five-minute walkthrough, or being pressured to forgo a home inspection, you’re better off just walking away. There are worse things than staying where you are or renting for another year or two until you can buy in a more balanced and sane market where you can do the necessary due diligence.
Zoom out from micro to macro view for necessary context, too.
Mortgage rates have been at or near historic lows for the past few years. And even with a modest increase in the coming year, these rates will continue to be bargains. Borrowers should keep in mind that interest rates in the 3.5 percent to 4 percent range are also below today’s rate of inflation, which is a powerful argument itself for purchasing a home or taking out a refinance loan if you can afford it.