A year ago, mortgage rates reached a record low not seen in nearly 50 years. In the first week of 2021, the 30-year fixed mortgage interest rate was hovering around 2.65% and rose slightly through the year to around 3.2% in early January of this year. As recent as November 2021, economists and Wall Street were predicting a slowly rising interest rate to upward of 3.4% by the end of Q4 2022. Well, we’ve reached that now, and its not even the end of January!
Experts are trying to recalibrate their forecasts and are debating the reasons for the sudden material increase in mortgage interest rates; however, the reasons are academic to a potential homebuyer who will be financing their next home. The interest rate on the mortgage is one of the chief factors that can determine the affordability of a home and a roughly 1.0% difference in the price of the mortgage affects not only the monthly payment but qualification and down payment as well.
What are interest rates now?
Mortgage interest rates remained below the pre-pandemic levels through 2021; however, we have seen a somewhat unexpected rapid rise this month of January 2022. The rate on a 30-year fixed rate mortgage has jumped from approximately 3.3% to over 3.7% to 4.0% in just the first month - an increase of nearly 70 basis points with nothing to indicate we are approaching an upper limit.
This 70-basis point jump in the interest rate in such as short time should be a ‘red flag’ and some experts are concerned because we have already shot beyond the peak rate forecast for the end of 2022 already. Many economists are expressing concern because the economy continues to accelerate toward higher and higher inflation, perhaps even a period of hyperinflation according to some.
Combine this with the rising yield on the 10-year bond that has traditionally been a bellwether or benchmark to mortgage interest rates and we’re seeing the beginning of what some might call a “perfect storm.’ Late last year experts were predicting the 10-year bond would rise to around 2% yield by the end of Q4 2022; well, just like the interest rate we are nearly there at more than 1.8% in January. Economists now forecast a 10-year bond yield of up to 3% or more by year end of 2022 if the Fed follows through on their stated prediction of three rate hikes during the year.
What does all of this mean?
What this means the average homebuyer will face higher hurdles and costs in the purchase of a home, notwithstanding the ongoing increase in 
home valuations. Even if the price of the home remained the same the cost of acquisition and ownership is rising quite rapidly. Borrowers with a 720 and above FICO score, in the “prime” lending category, will face interest rates on average of 3.5% to 4.0%. Borrowers with a below 700 FICO score in the “subprime” category are likely to face interest rates on the same loan of 4% to 5%.
Rates are changing daily and if you are looking to buy, even if you have a down payment of only 3% to 5% but good credit, there are loans available; but you had better get off your…. couch today. The situation will only be getting more expensive the longer you wait with escalating home values and rising interest rates – together both lower your chances of getting the home of your dreams!
We have a number of excellent lenders that we can direct our clients to that have had excellent success in helping even a borderline buyers qualify to obtain a mortgage. If you are interested in a home purchase DO NOT WAIT! Time is not on your side when it comes to the total cost. Let us work with you and help you to find an affordable home.
Bottom Line
Remember, a good Realtor will know more about the target market and will be honest with you about qualifying for a home. For more wisdom and guidance click the following link to get a FREE copy of Geni’s new book ‘12 INSIDER SECRETS You Need To Know Before You Buy!’.
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