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Buyers Rush to Lock In Rates

February 2, 2022

With mortgage rates are on the rise, buyers are watching them closely—and nervously. Their anxiety may be intensified by the rising costs of home prices. Home prices are up nearly 16% compared to a year ago, according to National Association of REALTORS®’ data.

Some buyers are arranging rate locks to ensure the stability of their mortgage rate as they shop for a home. That way, if interest rates rise further, they can look for homes knowing they have a set rate. For these buyers, the peace of mind of a long rate lock may be worth the extra cost to hold that interest rate.

While rate locks are most commonly for 30 days, buyers can lock rates for 45 days or more. But buyers must pay for a rate lock, and will pay more for a longer hold.

Buyers are also looking at buying down their interest rate by paying points to get a more attractive rate. Lenders may offer an option to pay a lump sum up front to lower the interest rate over the life of a loan. One discount point, in general, costs 1% of the total mortgage and could lower the interest rate by around 0.25%. Purchasing points could save tens of thousands and even hundreds of thousands of dollars over the life of a loan, lenders say, for buyers nervous about rising rates.

Pressure on Rates

However, Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, tells buyers not to panic about rates. The Federal Reserve last week announced it would raise its interest rates in March to help mitigate inflation. Mortgage rates, however, typically follow the trend of the 10-year Treasury yield and not the Fed’s key benchmark short-term rates, although the latter can influence mortgage rates.

NAR predicts the 30-year fixed-rate mortgage will rise this year and average 3.9% by the end of the year. Thirty-year rates currently average 3.55%, according to Freddie Mac.

“Even with this increase, mortgage rates will remain near historic lows,” Evangelou says.