Mortgage Rate Increase: Why Are Mortgage Rates Going Up? (2024)

Checking|Auto Loans|Mortgage|HELOC|Personal Loans|Credit Cards|Membership

2022 Mortgage rate increase: Why are mortgage rates rising?

You’ve probably heard the news that mortgage rates are rising and may be wondering, why did mortgage rates go up?

Mortgage interest rates fluctuate based on economic factors, including inflation and the financial index that the rate is tied to. (All interest rates are tied to a particular financial index.)

The recent mortgage rate increase is the result of inflation and the response by the Federal Reserve, which adjusts certain interest rates to slow inflation. Even with mortgage rates on the rise, you shouldn’t necessarily put off buying a home.

At Credit Union of Southern California (CU SoCal), we make buying a home in California easy.

Call 866.287.6225 today to schedule a no-obligation consultation and learn about our auto loans, home equity lines of credit, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.

Get Started on Your Mortage Today!

Why are mortgage rates going up?

To understand why mortgage rates increase, it is essential to understand what a mortgage interest rate is. A mortgage interest rate is a percentage charged by mortgage lenders on a mortgage loan that a property buyer applies for. Lenders charge interest on loans to cover risk and the expense associated with managing the loan.

1. Inflation. Inflation is a steady rise in the cost of goods and services. Inflation makes it challenging for most people to be able to afford everyday products. Typically, lower interest rates make it possible for homebuyers to afford a larger mortgage amount and purchase a higher priced home. When housing interest rates go up, homebuyers don’t qualify for as large a loan or may not qualify for a mortgage at all. This slows the economy, which helps curb inflation.
2. The Federal Reserve. To control inflation, the Federal Reserve (often called “the Fed”) will increase interest rates. Although the Fed doesn’t set mortgage rates, the rate of borrowing money increases as a result.
3. World events. Even world events, such as wars, and the supply chain issues we hear about can result in supply and demand problems that drive up the prices of goods, which is a factor in inflation.
4. Health of the economy. Economic factors affect mortgage interest rates for some of the reasons already discussed. The healthier and more stable the economy is, the lower and more stable interest rates will be.
5. Bond prices. Bond prices and interest rates move in opposite directions. Economic factors can drive bond prices lower, which makes mortgage interest rates rise.

The best way to find out how much house you can afford is to get a mortgage pre-qualification or mortgage pre-approval.

Will mortgage rates ever go down?

Yes, mortgage interest rates will eventually lower. However, it is not possible to try to guess when that will happen. The recent rise in rates will slow inflation, drive down housing prices and bring the economy to a stable plateau. Eventually, the Fed and other economic drivers will move the rates down.

Should I wait to buy a house?

That depends. There are times when it becomes essential to buy a house, such as when a job requires relocation, or a family situation arises where more space is needed to accommodate children or family members.

If you’ve recently sold a home and are renting an apartment, buying a home could help you avoid paying capital gains tax on the earnings from your home sale.

Due to the mortgage rate increase, fewer people are able to afford a home mortgage, which means that housing inventory will increase and you could have an easier time finding a home, due to less competition in the market.

One thing you can do if you are looking to buy a home is lock in a favorable mortgage interest rate when you find a one.

How to get a lower mortgage interest rate

Even when mortgage interest rates rise, there are still things you can do to get a good rate:

Check your credit score. According to Experian credit bureau, a credit score of 620 or higher is typically needed for a conventional mortgage. A better (higher) credit score typically means you’ll qualify for a better interest rate. Some government mortgage programs require a credit score of at least 580. Get your free Annual Credit Report.

Save for a down payment. Have you saved money for a down payment? The higher the down payment you can make, the lower the loan amount you’ll need.

Shop different lenders. Even with mortgage rates rising, credit unions, banks, and online lenders are offering competitive rates. However, it’s always smart to start the process by speaking with the financial institution where you currently have an account. You may qualify for special interest rate promotions or fee discounts.

Research different loan types. Mortgage rates vary based on lots of different factors, including loan type. For example, an adjustable rate mortgage (ARM) features a lower starting rate. Be sure to ask about all the loan types available.

Know when to lock in your rate. One way to combat the mortgage rate increase is to lock in an interest rate when submitting your loan application. Locking in a rate will ensure you get the rate you were first quoted.

Calculate your estimated monthly payment to help you determine how much you can spend on a new home.

Why Savvy Consumers Choose CU SoCal