Though it briefly dipped below 5% in early August, the average 30-year fixed mortgage rate is now back up to 5.89%, the highest it’s been since 2008, according to Freddie Mac.
Rates have increased dramatically in recent weeks as the Fed has signaled it will continue raising the federal funds rate until inflation comes down.
Tuesday’s Consumer Price Index release will give some indication as to how well the Fed’s efforts have been working. But even if price growth shows continued signs of slowing, the central bank is still likely to opt for an extra large, 75-basis-point hike at its meeting later this month.
In remarks he made at the Cato Institute’s 40th Annual Monetary Conference last week, Fed Chair Jerome Powell made it clear that the Fed is well aware of the risks of slowing the pace of rate hikes too soon, and that it’s committed to tightening monetary policy “until the job is done.”
But if the Fed is too aggressive, it could slow the economy enough to spark a recession. In spite of this risk, Powell has indicated that the Fed believes the pain caused by raising rates is preferable to the risks of continuing to let inflation run hot, which could cause much more pain in the long run.
What does this mean for mortgage rates? Borrowers can expect rates to remain elevated for the foreseeable future, and may even see them rise further. But as the economy starts to cool, likely in 2023, mortgage rates should come down as well.
Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments.
Your estimated monthly payment
- Paying a 25% higher down payment would save you $8,916.08 on interest charges
- Lowering the interest rate by 1% would save you $51,562.03
- Paying an additional $500 each month would reduce the loan length by 146 months
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.
30-year fixed mortgage rates
The current average 30-year fixed mortgage rate is 5.89%, according to Freddie Mac. This is an increase from last week, when it was at 5.66%.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.
15-year fixed mortgage rates
The average 15-year fixed mortgage rate is 5.16%, an increase from the prior week, according to Freddie Mac data. This is the first time this rate has surpassed 5% since 2009.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
5/1 adjustable mortgage rates
The average 5/1 adjustable mortgage rate is 4.64%, an increase from the previous week.
Adjustable rate mortgages can look very attractive to borrowers when rates are high, because the rates on these mortgages are typically lower than fixed mortgage rates. A 5/1 ARM is a 30-year mortgage. For the first five years, you’ll have a fixed rate. After that, your rate will adjust once per year. If rates are higher when your rate adjusts, you’ll have a higher monthly payment than what you started with.
If you’re considering an ARM, make sure you understand how much your rate could go up each time it adjusts and how much it could ultimately increase over the life of the loan.
Will mortgage rates go up in 2022?
To help the US economy during the COVID-19 pandemic, the Federal Reserve aggressively purchased assets, including mortgage-backed securities. This helped keep mortgage rates at historic lows.
However, the Fed has begun to reduce the assets it holds and is expected to increase the federal funds rate three more times in 2022, following increases in March, May, June, and July.
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 is a fixed-rate mortgage vs. adjustable-rate mortgage?
Historically, adjustable mortgage rates tend to be lower than 30-year fixed rates. When mortgage rates go up, ARMs can start to look like the better deal — but it depends on your situation.
Fixed-rate mortgages lock in your rate for the entire life of your loan. Adjustable-rate mortgages lock in your rate for the first few years, then your rate goes up or down periodically.
Because adjustable rates start low, they are worthwhile options if you plan on selling your home before the interest rate changes. For instance, if you get a 7/1 ARM and want to move before the seven year fixed-rate period is up, you won’t risk paying a higher rate later.
But if you want to buy a forever home a fixed rate could still be a better fit, since you won’t chance your rate increasing in a few years.