What is the Forecast for Mortgage Interest Rates [2022]?

Since the start of 2022, mortgage rates have increased significantly — and it’s likely to get even worse.
Last updated July 29, 2022 | By Kat Tretina | Edited By Michael Kurko
Interest rate calculation

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During the coronavirus pandemic, mortgage interest rates reached a record low. In 2020, the average 30-year mortgage rate for a fixed-rate mortgage dropped below 3.0% for the first time and reached a low of 2.77% in 2021.

However, the days of low mortgage rates seem to be over. What is the mortgage interest rates forecast? Experts say it’s probably going to get worse. Interest rates have steadily been climbing for the past few months, with the average rate topping 5.00%.

Higher rates translate to higher mortgage rates and monthly payments making homeownership unaffordable for many first-time homebuyers. If you're thinking of buying or refinancing a house, knowing what the future holds for interest rates (including refinance rates) may impact your decision.

In this article

What affects mortgage rates?

When you apply for a mortgage, lenders look at a range of factors to determine your interest rate. Your income, credit score, location, and the price of the real estate property you want can affect what rate you get. But there are larger economic factors that can impact rates too.

Inflation

Inflation is the rate at which prices increase over a period of time. When talking about national inflation rates, economists are referencing a broad measure of price increases or the cost of living. Inflation affects everything from bread at the grocery store to home prices.

As of March 2022, the Bureau of Economic Analysis announced that the price of personal consumer expenditures (PCE) had increased 6.6% over the past 12 months — far higher than the usual rate of inflation.

Inflation is one of the most important drivers of mortgage rates. Because inflation can weaken the power of a dollar, mortgage lenders raise their rates for borrowing to offset high inflation and maintain their profit margin.

The bond market

While the bond market is usually relatively stable, it’s experienced more volatility in recent months. When bond prices fall, bond yields increase. For instance, buying a $1,000 bond for $950 will result in a 5.3% yield. Buying the same bond at $980 will only offer a 2% yield.

Mortgage lenders look to the Treasury bond market when setting their interest rates. When Treasury bond yields increase, that change can drive increased interest rates.

In general, mortgage lenders track the performance of the 10-year bond yield. Yields on 10-year Treasury notes have increased since January 2022, reaching the highest levels since 2019, corresponding with higher interest rates.

The Federal Reserve

The Federal Reserve was created to keep prices stable. It views an inflation rate of about 2% to be reasonable, but when inflation rates exceed that number, the Fed will step in to curb inflation.

In response to rising rates of inflation, the Fed instituted its first rate hike in several years in March 2022. On May 4, 2022, it raised the federal funds rate to a range of 0.75% to 1% and is likely to announce additional hikes in the coming months.

The Fed doesn’t set specific interest rates for lenders. However, lenders may use the Fed’s funds rate as a benchmark when determining their rates. Similarly, changes to the Fed’s funds rate can cause interest rates on mortgages and other loans to increase.

Economic changes

There are many factors in the U.S economy that can impact the stock market and lender confidence. In the beginning of 2022, for instance, the economy was affected by Russia’s invasion of Ukraine and skyrocketing fuel costs. Continued uncertainty of Russian politics the global oil market has added to interest rate spikes.

Housing market conditions

It’s a simple example of supply and demand: When more people are shopping for a mortgage, lenders raise rates to handle the increased interest.

Though interest rates are higher than they were last year, homes are selling very fast. According to the National Association of Realtors (NAR), houses are on the market for an average of just 18 days, down from 20 days a year ago. In 2019, houses were on the market for 30 days on average before going under contract.

All of this is evidence that the mortgage market is still red-hot, which means lenders have no incentive to lower rates.

Are mortgage rates going up?

Between the weeks ending on April 25, 2019, and May 19, 2022, the average interest rates on 30-year, fixed-rate mortgages rose from 4.20% to 5.25%, an increase of 25%.

Despite some fluctuations, mortgage rates have been steadily rising since August 2021 and they show no signs of slowing down. How does that affect you? Consider these examples.

If you purchased a $350,000 home with a 20% down payment and qualified for a 30-year mortgage at 4.2% interest, your monthly mortgage payment for the principal and interest would be $1,369 per month. Your total repayment cost would be $492,840.

If you bought that same home but qualified for a 30-year mortgage at 5.25% interest, your monthly mortgage payment would jump to $1,546. By the end of your repayment term, you would pay $556,560 in principal and interest.

Here’s a visual representation of how this interest rate increase would affect what you owe:

Home purchase price $350,000 $350,000
30-year mortgage rate 4.2% 5.25%
Monthly mortgage $1,369 $1,546
Total repayment $492,840 $556,560

In this example, the higher interest rate would cause you to pay over $63,720 more over the life of your home loan ($556,560 - 492,840 = $63,720).

Mortgage rates (January - May 2022)

Mortgage rates reached their lowest point in January 2021, when the average rate on a 30-year mortgage was 2.65%.

That’s in stark contrast to 2022. In January, rates were significantly higher, with an average rate of 3.45%. Economists and mortgage experts were fairly optimistic that rates would stabilize or even decrease, but economic conditions changed dramatically.

Between inflation rates skyrocketing, the war in Ukraine, and rising oil prices, mortgage rates increased at a higher level than expected, reaching an average of 5.27% for fixed-rate mortgages as of May 19, 2022.

As you can see in the following chart, mortgage rates have steadily increased since the beginning of 2022. With continued economic changes expected, the average mortgage rates will likely continue to rise. 

You can compare offers from the best mortgage lenders to stay on top of changes and find the most competitive rates.

Average 30-year fixed interest rate Average 15-year fixed interest rate Average 5-year adjustable interest rate
January 2022 3.45% 2.66% 2.57%
February 2022 3.76% 3.0% 2.87%
March 2022 4.17% 3.39% 3.19%
April 2022 4.98% 4.22% 3.70%
May 2022 5.27% 4.47% 4.00%
Rates as reported by Freddie Mac as of May 19, 2022.

The forecast for the rest of 2022

What is the mortgage rate forecast for the remainder of 2022? If you’re thinking about buying a home or refinancing your mortgage, you may not want to wait much longer. With the Fed expected to announce rate hikes in the coming months, mortgage interest rates will likely increase.

As the Fed is more aggressive with its monetary policies, mortgage rates will be more expensive than they were last year. In fact, most experts said they expect rates to vary from 4.5% to 5.5% by the end of 2022. A rate of 5.1% will be relatively lower than we may see by the end of the year, so now could be the time to lock in a comparably low interest rate.

Is it too late to refinance?

Although rates are higher now than they were a few months ago, it could still be a good time to refinance your mortgage. Compared to the interest rates of the past few decades, rates are still relatively low. For example, interest rates for mortgages issued in 2007 were as high as 6.74%.

At today’s rates, refinancing can make sense in the following scenarios:

  • Your mortgage has a high rate: If you have an older mortgage with a high interest rate, refinancing at today’s rate could help you save money over the life of your loan.
  • Your credit and income have improved: When you took out your mortgage, your credit may have been less than perfect. You may also have been early in your career and earning a lower salary. If you’ve improved your credit and are earning more, you could qualify for a better interest rate than you did when you applied for your current mortgage.
  • You want to lock in a fixed interest rate: If you have an adjustable-rate mortgage and are worried about interest rate fluctuations, you could refinance and secure a fixed interest rate.

Keep in mind that rates are expected to increase throughout the coming months, so now may be the lowest interest rates you’ll see for a while.

Bottom line

With high levels of inflation, multiple rate hikes expected from the Federal Reserve, and a highly competitive housing market, interest rates aren’t likely to drop any time soon.

Mortgage interest rates are on the rise and are expected to continue increasing throughout 2022, and possibly into next year. If you're thinking of buying a home or refinancing your mortgage in the near future, now is the time to do it while interest rates are still relatively low.

If you’re ready to take the next step and are wondering how to get a loan, the first step is to compare mortgage lenders to find the most competitive rates.

If you need help navigating through the process, check out our guide on questions to ask your lender.

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Author Details

Kat Tretina Kat Tretina is a freelance writer based in Orlando, Florida. Her work has been published by publications like The Huffington Post, Entrepreneur, MarketWatch, and more. She specializes in producing content around paying down debt, increasing income, and maximizing credit cards. You can view her work at www.KTretina.com, or contact her on Twitter @KatTretina.