Will Mortgage Rates Climb in 2022?

Chances are, they will. But whether they do so drastically is yet to be determined.

If you're looking to buy a home this year, you may be in for a challenge. Not only are we starting off 2022 with very limited inventory (as was the case throughout 2021), but we're also starting off with record-high home prices. Buyers today may be banking on affordable mortgage rates to offset those higher prices.

So far, mortgage rates are higher in early 2022 than they were in 2021. But will rates continue to climb? While we can't say for sure, here's what buyers should expect.

Mortgage rates could climb, but that movement may be minimal

Last October, the Mortgage Bankers Association (MBA) predicted the average 30-year mortgage rate would reach 4% by the end of 2022. For context, as of this writing, the average 30-year fixed rate is sitting just under 3.5%.

For rates to reach 4% over the next 12 months, we're actually talking about minimal movement on a week-by-week basis. As such, if you're looking to buy a home, you don't need to panic over rising rates, nor should you rush to lock in a mortgage this month for fear that if you wait until March or April, you'll get stuck paying a lot more.

The MBA's prediction is just that -- a prediction. Mortgage rates may not reach 4% for the 30-year loan. Or, they may climb a little higher. The direction rates move will largely depend on outside economic factors, including decisions made by the Federal Reserve.

The Federal Reserve does not set consumer interest rates, contrary to what some may have been led to believe. The Federal Reserve won't directly dictate how much interest you get in your savings account, how much interest your credit cards charge you, or what interest rate a mortgage lender seeks to attach to your home loan.

That said, when the Federal Reserve raises the federal funds rate (the short-term borrowing rate for banks), it can influence consumer interest rates. And since the Federal Reserve signaled in late 2021 that it plans to raise rates this year, it could result in home buyers getting stuck with higher mortgage rates than the rates available right now.

But again, that doesn't mean rates will rise drastically. It's also important to recognize that right now, rates are still sitting near historic lows. In the context of the past 18 months or so, a rate of 4% on a 30-year mortgage may seem high. But in the context of the past 30 years, a 4% rate is extremely competitive.

What should you do about potentially rising rates?

Nothing much. You can't control mortgage rate movement, and rushing to buy a home for the sake of locking in a slightly lower mortgage rate won't necessarily serve you well. Quite the contrary -- you could wind up with a home that's overpriced and doesn't suit your needs very well if you rush to buy.

What you can do, however, is work on boosting your credit score so that once you're ready to apply for a mortgage, you're eligible for the lowest rate any given lender has to offer. If you manage to get your score into the upper 700s (or higher), you'll generally qualify for the best rate available -- no matter what it happens to be.