Getting a mortgage is one of the biggest financial decisions you can make. With mortgage rates on the rise in 2022, it’s more important than ever to compare interest rates and shop around for the best deal. This comprehensive guide will walk you through current mortgage rates, predictions for 2022, and tips for securing the lowest interest rate possible.
Introduction
After hitting historic lows in 2021, mortgage rates have been climbing upwards in 2022 as the Federal Reserve raises interest rates to fight inflation. 30-year fixed-rate mortgages averaged around 3.11% in 2021, while in June 2022 rates jumped to over 6% for the first time since 2008.
With the Fed forecasting further hikes, experts predict rates will continue trending up through 2022. This guide will outline current average mortgage rates, rate predictions for the rest of 2022, and most importantly – how to shop around and secure the best rate for your situation.
Current Mortgage Rates in 2022
Average 30-Year Fixed Rates
The 30-year fixed mortgage rate is the most popular option, accounting for over 90% of new mortgages. This table outlines national average 30-year fixed rates month-by-month in 2022 so far:
| Month | Average 30-Year Fixed Rate |
|---|---|
| January 2022 | 3.56% |
| February 2022 | 4.08% |
| March 2022 | 4.67% |
| April 2022 | 5.11% |
| May 2022 | 5.25% |
| June 2022 | 5.78% |
| July 2022 | 5.54% |
| August 2022 | 5.55% |
| September 2022 | 6.29% |
| October 2022 (so far) | 6.92% |
As shown, average 30-year fixed rates have almost doubled from 3.56% in January up to around 7% in October. September marked a 14-year high.
Average 15-Year Fixed Rates
15-year fixed rate mortgages are less common than 30-year loans, but offer lower interest rates and faster repayment. Here are the average 15-year fixed rates so far in 2022:
| Month | Average 15-Year Fixed Rate |
|---|---|
| January 2022 | 2.79% |
| February 2022 | 3.28% |
| March 2022 | 4.03% |
| April 2022 | 4.38% |
| May 2022 | 4.46% |
| June 2022 | 5.23% |
| July 2022 | 4.95% |
| August 2022 | 4.93% |
| September 2022 | 5.70% |
| October 2022 (so far) | 6.34% |
15-year fixed rates have followed a similar upward trend, nearly doubling from 2.79% to over 6% as of October 2022.
Average 5/1 ARM Rates
Adjustable-rate mortgages (ARMs) offer lower initial rates with interest that fluctuates after an intro period. 5/1 ARMs have a fixed rate for 5 years before adjusting annually. Here are the average 2022 rates:
| Month | Average 5/1 ARM Rate |
|---|---|
| January 2022 | 3.05% |
| February 2022 | 3.65% |
| March 2022 | 4.38% |
| April 2022 | 4.73% |
| May 2022 | 4.65% |
| June 2022 | 4.70% |
| July 2022 | 4.35% |
| August 2022 | 4.51% |
| September 2022 | 5.30% |
| October 2022 (so far) | 5.65% |
5/1 ARM rates are lower but have also climbed 2-3% higher since January. ARMs come with the risk of uncertainty when the rate adjusts.
Mortgage Rate Predictions for Rest of 2022
Most experts expect rates will continue trending up through the end of 2022. Here are a few rate predictions from major financial organizations:
- Fannie Mae: Predict average 30-year fixed rates around 5.4% by Q4 2022. Peak around 5.6% before retreating.
- Freddie Mac: Expect 30-year fixed rates to average 6.3% in Q4, reaching a peak of 6.6% in mid-2022 before declining slightly.
- MBA: Forecasts 30-year rates will climb to 6.6% by year-end 2022.
- NAR: Predicts 30-year fixed rates will reach 6.6% by the end of 2022.
- Goldman Sachs: Estimates 30-year fixed rates will peak around 6% before leveling off around 5.5-6% for remainder of 2022.
The common theme is average 30-year fixed rates are expected to climb to around 6-6.5% by the end of 2022 – a significant jump from 3% just last year. The Fed’s path to fighting inflation will be the biggest factor.
How to Get the Lowest Mortgage Rate
While average mortgage rates are rising, you still have power to secure a lower rate through comparison shopping and strong credit. Here are 7 tips for getting the lowest mortgage rate possible in 2022’s rising rate environment:
1. Shop Around With Multiple Lenders
- Rates can vary significantly between lenders – compare quotes from 3-5 lenders to find the lowest. Online lenders, credit unions, and community banks are worth considering in addition to big banks.
2. Get Pre-Approved Before House Hunting
- Being pre-approved signals you’re a serious buyer and can give negotiating leverage. Plus, it locks in a rate for 60-90 days.
3. Aim for a Credit Score of 760+
- A higher credit score means better mortgage terms. Take time to boost your score before applying.
4. Lower Your Debt-to-Income Ratio
- Lenders look at your DTI. Pay down debts and avoid new loans before applying.
5. Make a 20% Down Payment if Possible
- 20% down can lower your interest rate. Lenders view you as lower risk.
6. Lock Your Rate
- Lock your rate as soon as you’re ready to move forward. Protects you if rates rise further.
7. Communicate Life Changes
- Report job changes, new income, or improved credit as they may help your terms.
By taking the time to research lenders, improve your finances, and compare mortgage offers, you can lock in a lower rate even in today’s environment of rising rates. Consider using a mortgage broker to simplify the process. Be persistent and don’t settle if a lender offers higher than expected interest rates.
Types of Mortgages and How Rates Differ
There are a variety of different mortgage options beyond the standard fixed and adjustable rate loans. The mortgage type you qualify for will depend on your financial situation and goals. Here’s an overview of common mortgage types and how their interest rates compare:
Fixed Rate Mortgages
Fixed rate mortgages offer predictable interest payments that never change for the full loan term. As we’ve seen, 30-year and 15-year fixed rate loans are the most popular options:
- 30-year fixed: The longer payback period means smaller monthly payments, but higher total interest over time. 30-year fixed rates are lower than shorter terms. The current average is around 6.5%.
- 15-year fixed: Shorter term means higher monthly payments, but lower total interest. 15-year fixed rates are typically around 0.5% lower than comparable 30-year loans. Today’s average 15-year fixed rate is approximately 6%.
- 10-year or 20-year fixed: Also options, but less common. Rates on 10-year fixed mortgages are similar to 15-year. 20-year terms offer slightly lower rates than 30-year.
Adjustable Rate Mortgages (ARMs)
ARMs offer a fixed rate for an intro period before adjusting annually to market rates. Popular options:
- 5/1 ARM: Fixed for 5 years, then adjusts annually. Has a lower intro rate than fixed mortgages. The average 5/1 ARM rate is currently around 5.5%.
- 7/1 ARM: Fixed for 7 years. 7/1 ARMs have rates similar to 30-year fixed mortgages. Could be a good option if you plan to move before the initial period ends.
- 10/1 ARM: Fixed for 10 years before adjusting. 10/1 terms offer intro rates comparable to 30-year fixed rates.
ARMs come with the risk of uncertainty and potentially significant rate increases after the intro period. Use cautiously.
Government-Backed Mortgages
Government mortgage programs through FHA, VA, and USDA allow lower down payments but tend to have slightly higher interest rates. Common options:
- FHA loans require just 3.5% down payment. Credit score requirements are lower. Average 30-year FHA mortgage rate is about 0.5% higher than conventional 30-year fixed rate mortgages.
- VA loans offer 0% down payment for veterans/military. VA 30-year fixed rates currently average around 6.4%.
- USDA loans provide 100% financing for rural home buyers. USDA 30-year fixed rates are similar to VA loan rates.
Government-backed mortgages allow lower down payments at the cost of higher ongoing interest rates. Conventional equivalent rates are lower.
Jumbo Mortgages
Jumbo mortgages exceed conforming loan limits – $647,200 in most areas. They require larger down payments but frequently have lower interest rates:
- 30-year fixed jumbo: Down payment around 10-20%. 30-year jumbo rates average 0.25-0.5% below conforming 30-year fixed rates.
- 15-year fixed jumbo: Down payment of 20% or more needed. 15-year jumbo rates are around 0.5% lower than standard 15-year fixed.
If you can afford the larger down payment, jumbo loans often provide better interest rate deals vs. conforming mortgages.
Home Equity Loan/HELOC
Home equity loans and lines of credit (HELOCs) allow you to borrow against existing home equity. Rates are variable and tied to Prime rate:
- Home equity loan: Lump sum at fixed rate with set repayment schedule. Rates currently 8-12% for top credit tiers.
- HELOC: Revolving line of credit at variable rate. Current HELOC rates range from 6% to over 10% depending on Prime.
Use home equity financing cautiously as rates are higher and variable. Performance of entire loan depends on home value.
Current Jumbo Mortgage Rates
Jumbo mortgages exceed the conforming loan limit, which is typically $647,200 although it can be higher in pricier real estate markets. These larger loans require a down payment between 10-20% but often offer lower interest rates, making them attractive if you can afford the larger down payment.
Here’s an overview of current average interest rates for popular jumbo mortgage options:
| Loan Type | Interest Rate | APR |
|---|---|---|
| 30-year fixed | 6.25% | 6.28% |
| 15-year fixed | 5.75% | 5.77% |
| 5/1 ARM | 5.25% | 5.30% |
| 7/1 ARM | 6.125% | 6.15% |
| 10/1 ARM | 6.375% | 6.41% |
As shown, current jumbo mortgage rates are 0.25-0.75% lower than average conforming mortgage rates, providing noticeable savings for borrowers who qualify. Aim for 20% down or more and excellent credit to secure the lowest jumbo loan rates. Monitor Fed moves carefully.
Benefits and Drawbacks of ARMs vs. Fixed Rate Mortgages
Deciding between an adjustable-rate mortgage (ARM) and fixed-rate mortgage is an important decision. Here is an overview of the key benefits and drawbacks of ARMs versus fixed rate mortgages:
ARM Benefits
- Lower introductory interest rate and monthly payments
- Pay less interest initially if you sell before adjustment
- Monthly payments stay lower if rates fall at adjustment
- Qualify for a larger loan than with fixed rate
ARM Drawbacks
- Interest rate and payments unsure after intro period
- Monthly payments could spike significantly after adjustment
- Difficult to budget with uncertain payment amounts
- Potentially higher lifetime interest costs if rates rise
Fixed Rate Mortgage Benefits
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- Interest rate and monthly payments never change
- Predictable payments make budgeting easy
- Know exactly how much home you can afford
- Lower lifetime interest costs with longer terms like 30-year
Fixed Rate Mortgage Drawbacks
- Higher interest rates and monthly payments than ARM
- Must refinance to get lower rate if rates fall
- Difficult to qualify for larger loan amount
In summary, ARMs offer lower initial rates but unpredictable costs over long run. Fixed rate mortgages provide stability if you can handle higher rates. Pick based on budget, plans, and risk tolerance. Many opt for fixed rate mortgages to lock in rates in today’s rising rate environment.
7 Tips for Refinancing Your Mortgage in 2022
With mortgage rates climbing in 2022, you may be wondering if it still makes sense to refinance your home loan. Here are 7 tips for refinancing a mortgage this year:
1. Run the numbers: Calculate potential new rate/payment and how long it will take to recoup closing costs in savings. Target at least a 0.75% rate drop.
2. Mind closing costs: Estimate 2-5% of your loan amount. Keep costs low by sticking with your current lender.
3. Consider rate caps: Pay a bit more for a lower lifetime rate cap in case rates fall further.
4. Check cash-out options: See if you can tap equity to consolidate debts at lower rate.
