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Mortgage rates continued to climb this week as the spring homebuying season begins to warm up after a slow start.
The average 30-year, fixed-rate mortgage ticked up three basis points to 5.3% for the week ending May 12 compared to the previous week, according to Freddie Mac. Not since 2010 have rates been this high, a sizable departure from the average of just 2.94% a year ago.
The average rate for 15-year fixed-rate mortgages dropped four basis points from last week to 4.48%. Last year, the average rate of a 15-year fixed mortgage was 2.26%.
Those rates do not include fees and other costs associated with obtaining a home loan.
Related: Current 30-Year Mortgage Rates
People are Still Buying Homes Despite a Hefty Price Tag
Mortgage applications to buy a home rose 2% from last week, even as rates hit a 12-year high, according to the most recent Mortgage Bankers Association survey. This comes as home prices continue their double-digit growth pattern.
The median sales price of single-family homes rose 15.7% to $ 368,200 in the first quarter of 2022, up from 14.3% in the previous quarter, according to a report by the National Association of Realtors (NAR).
As home prices climb, so do the costs associated with homebuying. National closing costs for purchase mortgages jumped 13.4% in 2021 compared to the previous year, according to CoreLogic, a real estate data provider. Nationwide, the average closing cost on a mortgage to purchase a single-family property was $ 6,905 after transfer taxes.
Although skyrocketing housing costs have pushed many buyers out of the market, some folks aren’t running from higher prices.
“Owner-occupied buyers may be less sensitive to rising rates because this is more than an asset, that’s where they’re going to live — that’s where they’re raising their family,” said Thom Malone, an economist at CoreLogic. “Owner-occupied buyers might move to a less expensive part of the city to offset rates.”
How Homebuyers Can Prepare for Rate Hikes
While economic conditions can hint at where mortgage rates are headed, there’s no way to accurately predict whether they’ll keep rising and by how much. That means buyers are at the mercy of the market when they start shopping for a mortgage rate.
Even when buyers get preapproved for a mortgage, the rate they’re quoted during preapproval is not necessarily the rate they’ll be locked into during the official home purchase process. The reason for this is that rates are usually not locked until there is a contract to purchase a house. So if it takes buyers two months to find a house, have an offer accepted and go under contract, rates can drastically change in that period. If rates jump, the buyer might have less spending power; but if rates drop, the buyer’s budget might expand.
“Other than being prepared for higher rates, there’s really nothing a buyer can do to prepare for a rate hike,” says Melissa Cohn, regional vice president at William Raveis Mortgage. “Until you have a property and a contract to purchase, you probably can’t lock in a rate. You just need to make sure that your numbers take a higher rate and payment into consideration. ”
Some lenders, such as Guild Mortgage and Gateway First, do offer a rate-lock option called “lock & shop,” which allows you to lock in a rate before you have a contract. Rate lock-and-shops usually allow you to lock in a rate for a fixed period of time while you look for a house. This can be a money-saving path when rates are on an upward trajectory and housing inventory is limited.