Mortgage rates are rising: Is it your 'last chance' to refinance?

When the Federal Reserve indicated in December that it would be raising short-term interest rates to slow inflation – which had reached four-decade highs – it prompted a steady rise in mortgage rates.

Between the Fed announcement in December and its approval of a one-quarter percentage-point hike on Wednesday, mortgage rates for a 30-year fixed loan rose to almost 4% in early March from 3.3%.

Then on Thursday, the 30-year fixed-rate mortgage topped 4% for the first time since May of 2019, according to Freddie Mac. And it likely will rise further as the Fed is projecting six more rate hikes this year. 

The 30-year fixed-rate mortgage averaged 4.2% for the week ending March 17, up from the previous week when it averaged 3.85%. A year earlier, the 30-year rate  averaged 3.1%

For homeowners looking to refinance, there is no time like the present, experts say.

Picture of a calculator, a key and a mortgage document

Is it smart to refinance right now?

“While the next few weeks will be unpredictable as markets continue to churn, the outlook is for mortgage rates to rise even higher,” says Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors. “And my advice is to lock in a rate right now if they (homeowners) feel financially secure.”

Potential borrowers should keep in mind that mortgage rates remain historically low, she added.

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Among homeowners who’ve had a mortgage since before the pandemic, 74% have not refinanced, according to an October Bankrate survey.

“If you haven't had the chance to refi at this point in time now, this is sort of like your last chance to do it at these types of rates,” says Lindsey Bell, the chief markets and money strategist for Ally, a financial services firm.

Primary Mortgage Market Survey

The higher mortgage rates are also likely to further diminish the purchasing power of first-time homebuyers who are already contending with a small pool of available homes and double-digit price increases.

Nationally, home prices increased 19% year over year in January, according to CoreLogic. And since the beginning of the year, nearly 6.3 million households have been priced out, two million of whom are millennials households, says Evangelou.

The war in Ukraine adds an element of uncertainty to the market which could have an impact on mortgage rates, Evangelou says.

“Uncertainty typically makes investors move from stocks into the safety of bonds, pushing down Treasury yields and mortgage rates,” she says. “In addition, the spread of a new COVID-19 variant could also slow down the economy and keep mortgage rates low.”

Would the higher mortgage rates bring down home prices?

The housing market will continue to remain competitive due to low existing inventory, according to Sam Khater, Freddie Mac’s chief economist. He expects the spring homebuying season to be marked by high prices.

It generally takes time for mortgage rates to affect prices, says Daryl Fairweather, the chief economist at Redfin.

"We would expect to see the impact on prices in about three months,” says Fairweather. “Prices likely won't go down, but they could likely stagnate.”

Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. Follow her on Twitter @SwapnaVenugopal