Will Mortgage Rates Get Too High in 2022?

Mortgage rates have been on the rise. Will they keep climbing?

There's a reason demand for homes stayed strong throughout 2021 despite record-high prices. Mortgage rates sat at affordable levels last year, and they were low enough to help offset higher purchase prices.

But we're starting off 2022 in a different place. Mortgage rates rose steadily in January, and as of the beginning of February, the average 30-year mortgage rate was close to 3.8%. By contrast, a year ago, it was possible to get a 30-year mortgage at around 2.8%.

Now let's be clear about one thing. Historically speaking, 3.8% is still an extremely competitive interest rate for a 30-year loan. But if mortgage rates continue to climb, it could create a scenario where more and more buyers struggle to break into the housing market. The question is: How high will mortgage rates go this year?

Will mortgage rates keep rising?

In the absence of a crystal ball, it's hard to predict how high mortgage rates will climb this year. But while rates did jump notably in January, we're likely to see that pace slow as the year moves on.

Still, based on recent movement, it's fair to assume the average 30-year mortgage could reach 4% during the first half of the year. And we may be looking at more like 4.5% -- or higher -- by the end of 2022.

One factor that's apt to be driving rates upward is the Federal Reserve's decision to raise its interest rates. The Federal Reserve is not in charge of setting consumer interest rates or establishing mortgage rates. Rather, the Federal Reserve determines what rate banks charge each other for short-term borrowing.

But the Federal Reserve's actions can influence consumer interest rates. And that can be a good and bad thing.

Rising rates could make it so people with money in the bank get paid more interest in their savings accounts. But rising rates could also make borrowing more expensive by driving interest rates up for everything from mortgages to personal loans to credit cards.

Will you manage to afford a home in 2022?

While rising mortgage rates will no doubt make it more difficult to buy a home this year, rates could also lead to a decline in buyer demand. Once demand starts to wane, home prices could start to come down.

You may end up in a break-even situation this year where mortgage rates are higher than they were in 2021, but home prices are also down enough from recent highs that you're able to buy a place of your own. In fact, that would be a good situation for buyers who can swing a higher monthly mortgage payment but have limited funds to bring to the table in the form of a down payment.

Ultimately, it's hard to know exactly how mortgage rates will trend this year. While we can expect them to be higher than they were in 2021, they might still remain quite competitive for the remainder of 2022.