Mortgage Demand Rises Despite Spiking Rates. Here's Why You May Want to Buy Sooner Rather Than Later

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  • After weeks of declines, the demand for mortgages recently rose.
  • Although you'll pay a lot to finance a home right now, you may want to buy one before the year ends.
  • Mortgage rates are likely to climb even higher by the end of 2022.

If you've been holding off on buying a home, you may want to act now for one big reason.

There's a reason mortgage applications slowed down for much of August and September. Borrowing rates, which have risen sharply since the start of the year, ticked upward during the second half of the summer, to the point where many buyers were pushed out of the market.

In fact, mortgage rates are still quite high. But for the week ending Sept. 16, 2022, mortgage applications increased for the first time in six weeks, as per the Mortgage Bankers Association. What's equally surprising is that much of that activity was driven by refinance applications. But purchase mortgages were part of the mix, too.

Now at first glance, now might seem like a terrible time to buy a home. Real estate inventory is low, home prices are high, and borrowing has gotten frustratingly expensive. But if you're serious about purchasing a home, you may want to get moving before the end of the year for one big reason.

How much mortgage rate risk do you want to take?

Right now, mortgage rates are high -- considerably higher than they were a year ago. But we don't know if they're going to get higher. And there's reason to believe they will.

The Federal Reserve has been aggressively hiking up interest rates in an effort to slow the pace of inflation. The logic is that by making borrowing more expensive for consumers across the board, it could lead to a pullback in spending that will narrow the gap between supply and demand that's been fueling rampant inflation for well over a year.

As such, there's a good chance that as high as today's mortgage rates are, they'll climb even higher toward the end of 2022 and at the start of 2023. And as a buyer, that's a situation you'll want to get ahead of.

Are you ready to buy a home today?

If you're in a strong position to purchase a home, then doing so within the next couple of months could make a lot of sense. But how do you know you're at that point?

First, you should have enough money to make a 20% down payment on your home. Mortgage lenders will often accept less, but with a conventional loan, that will mean taking on the expense of private mortgage insurance, which will only add to your ongoing housing costs.

On top of that 20% down payment, you should make sure you have a solid emergency fund -- one with enough cash to cover a good three to six months of bills (and your monthly bills should be based on your expenses once you buy your home, since that will likely drive your living costs up higher). That way, you'll have money on hand to cover repairs or other issues that might crop up when you own a home.

Finally, you should have a steady income. If you're a freelancer designer who's been struggling to get clients lately, it's probably the wrong time to buy.

We don't know which direction mortgage rates will favor over the next year. But if you want to buy a home before they climb even more, then your best bet is to accelerate your home search now.

Our Research Expert

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