When Will Mortgage Rates Go Down in 2022?

When will mortgage rates go down in 2022? It is a question often asked since Q1 of 2022. It is one that is still left unanswered.

Table of Contents: 

1. Mortgage Rates Today
2. Financing or Cash: Which Is the Best Option for You?
3. Is Refinancing a Good Idea These Days?
4. Wrapping It Up

As mortgage rates for June hold steady for the time being, people are wondering if they will go down soon. Americans face increasing prices for groceries, fuel, and almost everything else, no thanks to inflation. On top of all that, homebuyers and real estate investors must deal with rising home prices and mortgage rates. 

People are growing tired of the increase in expenses that many are asking, “When will the mortgage rates go down?” 

Mortgage Rates Today

For us to know when mortgage rates will go down in 2022, we need to understand a few things first. One, several factors come into play in determining the direction of mortgage rate movement. Two, certain policies were put in place to ensure the housing market crash in the early 2000s never happens again. Lastly, mortgage rates are tied to the rules of supply and demand. 

Different factors that determine mortgage rates include, but are not limited to, the following: 

• Credit Score
• Property Location
• Property Value and Loan Amount
• Down Payment
• Loan Term
• Type of Loan

In addition, certain factors like a pandemic or a geopolitical situation influence mortgage rates in some ways. It is because such events affect economies, which lead to changes in the mortgage rate movement.

Historically Low Mortgage Rates

With the COVID-19 virus sweeping throughout the world, industries were disrupted and upended. The real estate industry was one of the first to feel its negative impact because the virus pretty much stopped all operations. Construction and home sales were put to a grinding halt.

The housing market was also affected as springtime sales in 2020 performed very poorly. Spring is usually the best time of the year for home sales. It also caused banks and private lenders to adjust rates, leading to the lowest mortgage rates in history. 

For most of 2021, though, homebuyers and real estate investors enjoyed historically low mortgage rates. The reason being is that there was a significant increase in property purchases amid a pandemic. 

The sales spike was caused by low interest rates and an increase in housing demand as companies embraced remote work. People living in urban areas opted to shop for bigger houses in the suburbs. In-migration was also a factor in the increase in housing demand. And because interest rates were low and housing was affordable, there was an influx of first-time home buyers. 

30-Year Fixed-Rate Mortgages

See below how the rates for a 30-year fixed-rate mortgage moved throughout 2021: 

• January 2021: 2.93%
• February 2021: 3.09%
• March 2021: 3.08%
• April 2021: 3.06%
• May 2021: 2.96%
• June 2021: 2.98%
• July 2021: 2.87%
• August 2021: 2.84%
• September 2021: 2.90%
• October 2021: 3.07%
• November 2021: 3.07%
• December 2021: 3.10%

While there are several variations of a 30-year fixed mortgage rates chart, they all pretty much reflect the same data. 

Based on the numbers above, the average mortgage rate for 2021 was only 2.99%. Rates only started picking up in January 2022, rising from the previous month’s 3.10% to 3.45%. From there, it went up to 5.27% in May 2022. The increase in mortgage rates somewhat slowed down coming into June at only 5.09%. However, rates climbed again to 5.54% in the second week of June. 

Interest rates today for 30-year fixed mortgages are now almost double compared to what they were a year ago. At the time of writing, mortgage rates this week for a 30-year mortgage based on the Bankrate findings is 5.91%. 

Related: Mortgage Rates: The Real Estate Investor’s Complete Guide

When Will Mortgage Rates Go Down This Year?

Given the speed at which mortgage rates are going, property buyers are wondering how high will mortgage rates go. Real estate investors looking for investment properties are putting their plans on hold at the moment. With the rapid increase in home prices and rising interest rates, they are seriously contemplating whether now is a good time to invest or not. Whether they plan to put up a traditional rental or an Airbnb business, they’re not certain if it’s a good time to make a move now.

While mortgage rates may go down anytime, it’s not going to be any time soon. At the rate that housing interest rates today are going, it will be very unlikely that they will drop. 

But when will mortgage rates go down again? They went down in the pandemic, right? Yes, that is true. In fact, it went below the 3% mark for half of 2021. But that’s only because the drop was needed at the time to help the economy recover. We experienced one of the worst financial crises in recent history following the onslaught of COVID-19. The economic recovery was so slow that mortgage rates stayed below or hovered near 3%. They only shot up dramatically and reached 5% earlier this year. 

With the economic rebound and inflation being very pronounced in the pandemic’s latter stages, we can see mortgage rates rising at their fastest rate in decades. So, it is very unlikely that rates will go down again to sub-3% levels for the remainder of 2022 unless something huge happens. 

The Federal Reserve’s Recent Percentage Point Rate Hike

One of the things that can affect mortgage rate trends is the Federal Reserve. Very recently, the Fed increased its federal fund rates target by 0.75% following its latest two-day meeting. The latest point percentage rate hike is the largest since 1994, according to CNBC. Individual members’ expectations project that the benchmark rate will most likely hit 3.4% by year’s end.  

Following the geopolitical conflict in Eastern Europe, officials also say that the 2022 economic growth outlook is now down to only a 1.7% improvement, coming from 2.8% in March. 

Given the recent development, what does the latest rate hike mean for you? Will it make mortgage rates go down this year? And if it does, when will mortgage interest rates go down?

According to Federal Reserve Chairman Jerome Powell in his briefing on Wednesday, “The Fed is strongly committed to bringing inflation back down.” The latest hike is only a part of a rate-hiking cycle that aims to crush inflation without leading to a recession. The logic behind the Fed’s plan is to increase interest rates to reduce demand. It might provide some form of relief but it also comes at a cost. 

For one, the cost of borrowing will escalate pretty quickly. If you’re a borrower, you are now faced with higher charges for any loan you will take. As it is now, short-term borrowings are already going up. Take credit cards, for example. The average annual rate for credit cards today is 16.61%. With the recent hike, we’re looking at a 19% rate by the end of the year. 

As a home buyer or real estate investor, experts recommend switching to longer-term loans if you’re on an adjustable-rate mortgage. Loans with longer terms like a 15-year or 30-year mortgage come with fixed rates. Those with longer-duration loans will probably not feel the hike’s effects immediately. 

However, just because their rates are fixed doesn’t mean that you should immediately switch to 15- or 30-year mortgages. At the time of this writing, interest rates for a 30-year mortgage are already at 6.28%. It represents a full 3-percentage point jump from December 2011. Given the rate at which they’ve increased, it’s hard to say how high mortgage rates will go for the rest of the year. We’ll just need to wait and see what the next Fed meeting on interest rates 2022 will be. 

Related: Why Real Estate Investors Need a Mortgage Calculator

Financing or Cash: Which Is the Best Option for You?

With mortgage rates expected to continue on their upward trajectory, the question now is whether to buy in all-cash or still go with financing? 

This one’s a bit tricky and really has no right or wrong answers. It will largely depend on your financial situation. 

Do you have enough cash to invest in an income property without compromising your other priorities? Can you afford to take on a loan given the higher rates today? 

They are just some of the questions you need to give honest answers to. Your answers will determine which option works best for you. 

For investors looking to buy income properties for sale, you are going to want to approach it with extra caution. The reason you’re in the market for real estate is to buy a property that will yield a good return on investment.

Given the current economic situation and the increasing rates, you need to calculate how much your initial investment will be against your projected ROI. It will involve lots of time and effort doing research and analysis. You can speed up the research process by using a website like Mashvisor to help you analyze properties and find the one that’s right for you. 

If you can afford to buy a property in cash and still be financially comfortable, go ahead. You can easily recover your investment as long as you put the right investment strategy in place. You can get the house fixed and then flip it afterward. Or, perhaps you can convert it into a traditional rental property for regular income. Then again, you can use it as a vacation rental property, given that Airbnb is growing more popular these days. 

Building Your Savings First

Now, if you don’t have enough money on hand for a cash transaction, it will require more serious thought on your part. We recommend building your savings first before you even consider securing a loan for your property investment.

Using your emergency fund is not something we recommend. The fund is intended to be used to keep you financially afloat when the unexpected happens. Real estate investments are not exactly emergencies, so as much as possible, let your emergency fund fulfill its purpose. 

For those of you who are interested in investing in real estate with no money, there are several ways to do it. You can invest in REITs, participate in real estate crowdfunding, convert your home into an Airbnb rental, or house hack, among other things. There are many great options out there that will help get you started without taking out a loan or spending too much money. 

If there’s enough money in your savings account (on top of your emergency fund, that is) and you’re able to access a stable income source, then perhaps you can afford a loan. But that will be entirely up to you and how you manage your money. Consider the rate at which interest rates are going up today and see if a fixed-rate mortgage will work for you. If you don’t plan to hold on to the property long enough (say five years tops), then an ARM might be a better option. 

Just make sure that whatever your decision is, it is backed up by facts and established market data. Don’t base it on a hunch or emotion. It is, after all, your hard-earned money we’re talking about here. 

To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.

Is Refinancing a Good Idea These Days?

As mortgage rates continue on their upward trend, homeowners and investors are scrambling to get their properties refinanced. Currently, at the rate things are going, there are only about 1.3 million homeowners who can reduce their rate by up to 0.75%. However, each time the rates go up, the number of borrowers who can save money on refinancing also dwindles. 

Refinance borrowers must have at least a 720 credit score, a 20% equity in their property, and can shave off 0.75% off their rates on a 30-year mortgage. However, even if you are eligible for refinancing, you’ll still need to consider how it will go for you in the long run. It will depend on how many years you still have to pay off. 

For instance, if you take an existing 5% mortgage with 26 more years left to pay and switch to a 4% refinance for 30 years, it will cost you around $13,000 in interest. 

Another consideration is how long you intend to hold on to the property. If you sell quickly after refinancing, the closing costs might be too much for you to handle. Depending on the lender, closing costs on a refinance can go from 2% to 5% of the loan amount. 

So before you decide, make sure your reasons for refinancing make sense in the long run.

Related: Experts Forecast Adjustable Rate Mortgage to Grow in Popularity in 2022

Wrapping It Up

So, when will mortgage rates go back down? The truth is no one knows exactly. The Fed is doing all it can to help mitigate the effects of inflation at this point. Investors and homebuyers should proceed with caution before they take out loans or refinance at this time.

There are a lot more things to consider now, given the current economic climate we’re in. Due diligence should always be exercised before making any final investment decisions. 

Part of performing that due diligence is planning accordingly. You cannot help the movement of mortgage rate trends, but you can prepare for them by conducting a thorough real estate market analysis. It will help you evaluate a property’s profitability. 

The good news is that a website like Mashvisor exists. It maintains a huge and highly accurate database of real estate markets across the country. The platform allows you to get a better idea of actual market conditions and opportunities.

Mashvisor also offers investment tools, including an investment property calculator that factors in mortgage rates for projecting a property’s profitability. Getting a partner like Mashvisor will make investing a lot more efficient and safer. 

To start using Mashvisor’s real estate investment tools, sign up for a 7-day free trial now.