All eyes are on the Federal Reserve as it gears up for another likely 75-basis-point rate hike at its meeting next week.
Mortgage rates started increasing in late August as members of the Federal Open Market Committee — the committee that determines the Fed’s monetary policy — have indicated they’ll continue to act aggressively until inflation shows sustained signs of slowing down to its annual target rate of 2%.
“While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down,” Fed Chair Jerome Powell said in a speech on Aug. 26.
Mortgage rates have increased this year as the Fed has tightened monetary policy to address out-of-control price growth. Because investors anticipate more large hikes to come, mortgage rates are likely to remain at their current levels. As the economy starts to slow, the Fed will eventually ease up on its rate hikes, and mortgage rates may start to calm, as well.
But for now, homebuyers should expect rates to remain elevated.
“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said. “The historical record cautions strongly against prematurely loosening policy.”
Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.
Mortgage rates started ticking up from historic lows in the second half of 2021 and have increased significantly so far in 2022. More recently, rates have been relatively volatile.
In the last 12 months, the Consumer Price Index rose by 8.5%. The Federal Reserve has been working to get inflation under control, and plans to increase the federal funds target rate three more times this year, 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.
When mortgage rates go up, home shoppers’ buying power decreases, as more of their anticipated housing budget has to go toward paying interest. If rates get high enough, buyers can get priced out of the market completely, which cools demand and puts downward pressure on home price growth.
However, that doesn’t mean home prices will fall — in fact, they’re expected to rise even more this year, just at a slower pace than what we’ve seen in the past couple of years.
It can be hard to know if a lender is offering you a good rate, which is why it’s so important to get preapproved with multiple mortgage lenders and compare each offer. Apply for preapproval with at least two or three lenders.
Your rate isn’t the only thing that matters. Be sure to compare both what your monthly costs would be as well as your upfront costs, including any lender fees.
Even though mortgage rates are heavily influenced by economic factors that are out of your control, there are some things you can do to help ensure you get a good rate:
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