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Today’s mortgage and refinance rates: May 5, 2022 | The Fed announces its largest rate hike since 2000

The Federal Reserve announced Wednesday that it will raise the federal funds rate by 0.5% and reduce its balance sheet as part of its mission to get inflation under control. This half-point increase is the Fed’s largest hike since 2000.

The central bank is expected to raise rates at each of its remaining five meetings this year. Unless inflation starts responding to the Fed’s efforts, mortgage rates are probably going stay elevated for the next couple of years, and may even increase further.

When rates are high, it becomes even more important for homebuyers to shop around with multiple mortgage lenders to see who offers them the lowest rate. When you find a rate you like, be sure to lock it in.

“As the next few weeks and even months remain unpredictable, it’s a good idea to evaluate and track your qualified mortgage options with an eye towards locking in a loan option,” says Robert Heck, vice president of mortgage at Morty. “Locking a rate is typically not binding, and you can always reevaluate your options as things progress.”

Are mortgage rates going up?

Mortgage rates started ticking up from historic lows in the second half of 2021, and will likely continue to increase throughout 2022.

In March, the Consumer Price Index reached an annual rate of 8.5%, the fastest rate of inflation since 1981. The Federal Reserve has been working to get inflation under control, and plans to increase the federal funds target rate five more times this year, following a 0.25% increase at its March meeting and a 0.5% increase in May.

Though not directly tied to the federal funds rate, mortgage rates are often pushed up as a result of Fed rate hikes. As the central bank continues to tighten monetary policy to lower inflation, it’s likely that mortgage rates will remain elevated.

What do high rates mean for the housing market?

When mortgage rates go up, home shoppers’ buying power decreases, as more of their anticipated housing budget has to go toward paying interest. If rates get high enough, buyers can get priced out of the market completely, which cools demand and puts downward pressure on home price growth.

However, that doesn’t mean home prices will fall — in fact, they’re expected to rise even more this year, just at a slower pace than what we’ve seen in the past couple years.

Even though high rates slow demand, low inventory will keep pushing prices up, says Ralph DiBugnara, president of Home Qualified and senior vice president of Cardinal Financial.

“There’s such a shortage that even if 50% of the people stop looking today, you would still have a high demand,” he says. “So I just think that because of that demand, you’re going to see prices rise for at least another 18 to 24 months.”

What is a good mortgage rate?

It can be hard to know if a lender is offering you a good rate, which is why it’s so important to get preapproved with multiple mortgage lenders and compare each offer. Apply for preapproval with at least two or three lenders.

Your rate isn’t the only thing that matters. Be sure to compare both what your monthly costs would be as well as your upfront costs, including any lender fees.

Even though mortgage rates are heavily influenced by economic factors that are out of your control, there are some things you can do to help ensure you get a good rate:

  • Consider fixed vs. adjustable rates. You may be able to get a lower introductory rate with an adjustable-rate mortgage, which can be good if you plan to move before the intro period ends. But a fixed rate could be better if you’re buying a forever home because you won’t risk your rate going up later. Look at the rates your lender offers and weigh your options.
  • Look at your finances. The stronger your financial situation, the lower your mortgage rate should be. Look for ways to boost your credit score or lower your debt-to-income ratio, if necessary. Saving for a higher down payment also helps.
  • Choose the right lender. Each lender charges different mortgage rates. Picking the right one for your financial situation will help you land a good rate.
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