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Fed Forecast: Era Of Bargain-Rate Home Loans Will Soon End

While mortgage rates floated near—or below—the 3% bargain range for most of 2021, thousands of Chicago-area homeowners refinanced their loans. Those who sat on the dock missed the boat.

Now, the sand has pretty much run out of the hour glass, based on the Federal Reserve’s action on December 15th.

To rein in inflation—which rose to 6.8% in November—the Fed said it plans to shift from a relaxed monetary policy that has supported the economic rebound from the 2020 pandemic recession toward a tighter policy.

Robert Dietz, chief economist for the National Association of Home Builders, forecasts that the federal-funds target rate will likely undergo three 25-basis-point interest hikes in 2022, and three more similar increases in 2023.

This implied tightening would push the 10-year Treasury rate—the gauge economists use to forecast 30-year-fixed mortgage interest charges—to 2% from the current 1.42%.

As a result, the interest rate on benchmark 30-year home loans will rise “somewhat higher than 3.6% by the end of next year,” Dietz said.

A recent forecast by the Mortgage Bankers Association projects 30-year fixed home-loan rates to rise to 4% by the end of 2022. If the Fed hikes its rates three more times in 2023, mortgage rates easily could rise to 4.5% or higher.

On December 16th, benchmark 30-year fixed home loan average nationwide rose to 3.12% up from 3.19% a week earlier, reported Freddie Mac’s Primary Mortgage Market Survey. A year ago, the 30-year fixed loans averaged 2.67%.

Meanwhile, the rate on 15-year fixed mortgages slipped slightly to an average of 2.34% from 2.38% a week earlier. A year ago, lenders were quoting a rate of 2.21% on 15-year fixed loans.

Thirty-year fixed-mortgage interest rates ended 2020 at a rock-bottom 2.66%—the lowest level in the Freddie Mac survey history, which began in 1971. Home-loan rates set new record lows for an amazing 16 times in 2020, and tens of thousands of homeowners refinanced.

“Mortgage rates inched up last week as a result of economic improvement and a shift in monetary policy guidance,” noted Sam Khater, Freddie Mac’s chief economist.

“While house-price growth is slowing, prices remain high due to solid housing demand and low supply,” Khater said. “We expect loan rates to continue to increase into 2022, which may leave some potential home buyers with less room in their budgets on the sideline.”

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home-purchase loans for borrowers who place a 20% down payment and has excellent credit.

However, Chicago-area borrowers who move quickly still have a chance to lock in the following bargain rates as of December 17th, reports

  • First Savings Bank of Hegewisch was quoting 2.684% on a 30-year loan and 2.1% on a 15-year loan with 20% down payment and a $570 loan fee.

  • Gateway Capital Mortgage in Chicago was quoting 2.760% on 30-year loans and 2.125% on 15-year mortgages with a 3% down payment and a $595 loan fee.

  • Rate Rabbit was quoting 2.790% on a 30-year loan and 2% on a 15-year mortgage with 20% down. However, the loan fee is $1,900.

Mortgage-rate history

Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates in the 1960s were not much higher than the Great Depression, when lenders were charging 5% on five-year balloon loans.

Nearly six decades ago, between 1963 and 1965 you could get a mortgage at 5.81% to 5.94%. Between 1971 and 1977, the now-defunct Illinois Usury Law held rates in the 7.6%-to-9% range.

In the early 1980s, run-away inflation caused home-loan rates to skyrocket over the moon. According to Freddie Mac, benchmark 30-year mortgage rates peaked at a jaw-dropping 18.45% in October of 1981 during that Great Recession.

Rates finally fell below 10% in April of 1986, and then bounced in the 9%-to-10% range during the balance of the 1980s. More than 22 years ago—in August of 1999—when some of today’s Millennial borrowers were in diapers, lenders were quoting 8.15%.

For more housing news, visit Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit


“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”


Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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