30-Year Mortgage Rates Might Average 4% Next Year -- but Is That a Bad Thing?

Mortgage rates could climb in 2022. Here's what prospective buyers need to know.

A big reason buyers have been so interested in purchasing homes this year is that mortgage rates have sat near historic lows. But those rates may not hold for much longer. The Mortgage Bankers Association predicts the average rate for the 30-year fixed loan will rise to 4% in 2022. Not surprisingly, the group also anticipates a decline in mortgage originations.

If you're thinking of buying a home in 2022, you may be disappointed to hear the average mortgage rate could climb. But that's not totally a bad thing for a couple of reasons.

4% rates are still competitive

Right now, the average 30-year mortgage rate is sitting at around 3.2%. Clearly, that's more appealing than having to pay 4% interest on a home loan. But it's important to remember that on a historical basis, 4% is still a really great rate. It's not so far off from where rates are sitting today.

If you take out a $200,000 mortgage at 3.2% interest, your monthly payment for principal and interest will be $865. That same loan at 4% interest will leave you with a monthly principal and interest payment of $954. Now, this isn't to say that spending an extra $89 a month on a mortgage is something you're eager to do. But we're also not talking about paying many hundreds more on a monthly basis.

Furthermore, that 4% interest rate applies to a 30-year loan. If you're able to get a shorter-term mortgage, like a 20-year loan, you might snag a much lower interest rate in the process.

4% rates could drive some buyers away

While mortgage rates may be low right now, home prices are anything but. In fact, home prices are so high that despite low interest rates, many would-be buyers can't afford to make an offer.

If mortgage rates jump to 4% next year, some buyers might back away. The result? Less competition, fewer bidding wars, and home prices that could start to come down in a meaningful way.

Imagine if you were to buy a home next year and you'd only need a $180,000 mortgage instead of $200,000 based on lower home prices. Even if you were to end up paying 4% interest on a 30-year loan, your monthly principal and interest payment would amount to $859. That's less than what you'd pay for a $200,000 mortgage at 3.2%.

Don't sweat rising mortgage rates

While the idea of having mortgage rates go up next year may rattle you as a prospective buyer, it's not something you should actively worry about. For one thing, just because experts predict a pattern doesn't mean it'll actually come true. Also, a lot of other positive movement could happen in the real estate market, like dropping home prices, to offset higher interest rates.

Rather than stress over the potential for higher mortgage rates, do your best to snag the lowest rate possible. That means making sure your credit score is in great shape, or boosting your credit score if it needs work.