Mortgage demand hit by rising rates
For the week ending Oct. 15, total mortgage demand — including applications to refinance and purchase homes — fell 6.3% from the previous week, the Mortgage Bankers Association (MBA) reported on Wednesday.
Requests for loans to buy homes went down 5%, while refinance applications sank 7% from the previous week and were 22% lower than the same week a year earlier.
"Refinance applications declined for the fourth week as rates increased, bringing the refinance index to its lowest level since July 2021," says Joel Kan, the MBA's vice president of forecasting.
In the mortgage bankers' weekly survey, the average rate on a 30-year fixed-rate mortgage reached 3.23% last week, the highest since April, Kan says. The average for a 15-year mortgage — a loan popular among refinancing homeowners — jumped to 2.54%, the highest since July.
Even with the recent increases, mortgage rates remain historically low. But new reports indicate they'll keep rising.
Forecasts predict sizable rate increases
Mortgage giants Fannie Mae and Freddie Mac just released separate reports predicting 30-year mortgage rates will average in the mid-3% range next year.
Fannie Mae predicts rates will hit an average 3.3% in 2022, and that's up from a month ago, when the company said 3.1% would be next year's typical rate.
Why the change? Increased inflation and the Federal Reserve's expected tightening of monetary policy, Fannie Mae says.
Meanwhile, another new forecast, from the Mortgage Bankers Association, predicts rates will reach an average 4% in 2022.
As a result, demand for mortgages will plummet, with refinances likely to drop 62% next year, the group says. But purchase applications are expected to grow 9% to a new record high, with another bump expected in 2023, the forecast notes.
How to snag a low rate will you can
Despite the predictions for higher rates, borrowing costs — today, at least — are still lower than they were before COVID-19 hit.
Whether you’re thinking about a refi or purchasing a home, getting the cheapest possible mortgage rate takes a bit of work on your part. To kick off the process, check rates from at least five lenders. Shopping around is the most reliable way to get the best rate in your area.
The lowest rates go to borrowers with the best credit scores. If you haven’t seen your score in a while, take a look — these days, you can easily check your credit score for free — to see if it needs a boost before you submit a loan application.
If you qualify for a refinance, you could potentially save hundreds of dollars a month — money that could go toward your credit card balances or paying off other, high-interest debt.
But if you’re not there yet, consider other ways to cut the cost of homeownership. When your homeowners insurance policy comes up for renewal, be sure to gather quotes from multiple insurers. You could find savings there, too.