Mortgage rate growth will likely continue

With strengthening employment and expanding economic activity, the Federal Reserve confirmed it will adjust its policies to offset inflation. 

The central bank announced in its January meeting that “it will soon be appropriate to raise the target range for the federal funds rate” and decided to “continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March.”

That could mean big mortgage rate spikes mid-March when the Fed fully withdraws its support. So those who haven’t refinanced yet but plan to do so should start as soon as possible.

The Fed effect and the latest FOMC meeting 

While the Federal Reserve doesn’t actually make mortgage interest rates, they have a tight correlation to the central bank’s policies and actions.

The Fed announced after its Federal Open Market Committee (FOMC) Jan. 26 meeting that it will continue reducing its mortgage-backed securities (MBS) purchases, ending them by early March.  

The FOMC also confirmed that it expects to raise the target for the federal funds rate “soon” — confirming what the minutes from its December meeting revealed. Both of these policy changes indicate economic growth and higher inflation, and mortgage rates almost always move directly with them.  

“Today’s clear signal from the Federal Reserve that they will hike rates in March was no surprise, given the strong job market and inflation well above the 2% target,” said Mike Fratantoni, Mortgage Bankers Association SVP and Chief Economist.

The FOMC did note that its decisions aren’t set in stone and could adjust them based on the course of the pandemic and any other risks to the economy. 

What this means for borrowers

Interest rates already grew significantly to start the year and we could be looking at more of the same as the lending market reacts to the Fed’s actions.  

While predicting where rates will go comes with uncertainty, all indications point to a growing rate environment throughout 2022.

“With even higher rates on the horizon, I don’t see any reason to hold off from refinancing right now” –Nadia Evangelou, NAR

“Mortgage rates will continue to move upward. With even higher rates on the horizon, I don’t see any reason to hold off from refinancing right now,” said Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors.

While average interest rates may bounce around from day to day and week to week, odds are they will generally increase going forward.

Anyone who held out on refinancing and hoped for a reversal could be out of luck and should probably act quickly before rates rise further. 

The bottom line

Given the latest Fed news and industry forecasts, locking in a rate sooner will likely be better than in months or even weeks from now. 

“The best time to refinance is a time that works best for one’s personal financial situation. But, with rates expected to rise further, it makes sense for borrowers who are ‘in the money’ to refinance to act soon,” said Odeta Kushi, deputy chief economist at First American.

For potential home buyers and refinancers alike, you should reach out to lenders and see the loans and rates you qualify for.

Verify your new rate (Jan 26th, 2022)