Alyssa Powell/Insider
Interest rates should increase in 2022
For most of 2020 and 2021, fixed mortgage rates were significantly lower than adjustable rates. Now, adjustable rates are dropping and staying competitive with fixed rates.
You may like an adjustable-rate mortgage if you plan to move before the initial rate period ends, because then you won’t risk a rate increase. But because rates are at all-time lows, rates will likely be higher by the time your rate period ends.
If you plan to stay in the home for a long time, a fixed-rate mortgage could be a better deal so you keep a low rate.
Overall, mortgage rates have yet to match their 2021 highs and are still below June 2020 levels, constituting historic lows.If the market dynamics continue — stable COVID cases, inflation, and supply chain issues gradually softening — we should see mortgage rates increase gradually over the course of 2022.Robert Heck, Morty
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Will mortgage rates go up in 2021?
In early November, the Federal Reserve announced that it will begin tapering its asset purchasing. The Fed has been aggressively buying assets, including mortgage-backed securities, to help the US economy during the COVID-19 pandemic. This has been one factor keeping mortgage rates low.
Now that the Fed is stepping back, we will likely see rates increase in 2022 — but you probably don’t need to worry about jumps in 2021.
Although mortgage rates are still at all-time lows, they have been gradually inching upward over the past two months or so. Robert Heck, vice president of mortgage at Morty, told Insider that rates were already increasing in anticipation of the Fed’s November announcement. So when the Fed revealed its plans to taper purchasing, rates didn’t jump as a result.
“Overall, mortgage rates have yet to match their 2021 highs and are still below June 2020 levels, constituting historic lows,” Heck said. “If the market dynamics continue — stable COVID cases, inflation, and supply chain issues gradually softening — we should see mortgage rates increase gradually over the course of 2022.”
You may want to lock in a low mortgage rate before the end of the year if you’re worried about rates going up in 2022.
What is a fixed-rate mortgage vs. adjustable-rate mortgage?
In the past few weeks, fixed mortgage rates have been inching upward as adjustable rates drop. An adjustable-rate mortgage (ARM) could be a good deal depending on your situation.
Fixed-rate mortgages lock in your rate for the entire life of your loan. Adjustable-rate mortgages lock in your rate for the first few years, then your rate goes up or down periodically.
Because adjustable rates are starting low, they are worthwhile options if you plan on selling your home before the interest rate changes. For instance, if you get a 7/1 ARM and want to move before seven years, you won’t risk paying a higher rate later.
But if you want to buy a forever home, a fixed rate could still be a better fit. Fixed rates are relatively low, and you won’t chance your rate increasing in a few years.
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