Mortgage applications are rising. Here's why you should act now.

Mortgage applications are up right now, despite winter being a time when fewer people want to purchase homes. According to data from the Mortgage Bankers Association, mortgage applications went up 9.9% compared to the week prior for the week ending on January 5. This includes an adjustment to account for the New Year's holiday that fell on that week.

This uptick in mortgage applications could be a sign that if you've been waiting for more favorable mortgage rates, now is the time to act. Here's why you may want to get preapproved for a mortgage and start shopping now. 

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Mortgage applications are rising. Here's why you should act now.

Buying a home is a big decision, and it's important to get the timing right. That said, with mortgage applications increasing recently, it might make sense to start shopping soon. Here's why: 

Mortgage rates are slightly down

Your mortgage rate is one of the most important factors when borrowing money for a home. This rate has a significant impact on what you'll pay each month for your mortgage loan, so even a slight change in your mortgage rate can make a big difference to your household budget. 

Mortgage rates have been high recently compared to what they were just a couple of years ago, largely as a result of the Federal Reserve raising the federal funds rate to temper inflation. 

But after numerous hikes, the Fed has kept the federal funds rate paused for three straight meetings, and mortgage rates have dropped slightly since. As of January 12, 2023, the average national interest rate for a 30-year fixed-rate mortgage was 7.07%, and the average rate on a 15-year fixed-rate mortgage loan was 6.46%. On November 1, the rates were 8.06% and 7.20%, respectively.

If you want to apply for a mortgage, start shopping for the right lender now. 

Rates could rise again due to inflation

Inflation increased again in December after several months of cooling. The year-over-year inflation rate was 3.4% in December, up from 3.1% in November.

This could cause mortgage rates to increase again. Mortgage rates are often influenced by inflation, and with the recent uptick, the Fed may see it as a sign that the problem is not yet under control. 

The goal is to get inflation down to 2%. And, given the increase in December, the Fed may choose to raise the federal funds rate again when they meet at the end of January. It's unclear whether this will happen, but if it does, it could cause mortgage rates to climb. 

You can always refinance

Many potential buyers opt to wait due to concern that rates will drop soon after they buy, leaving them stuck with a high mortgage rate, while those who wait have more favorable terms. If you are in that situation, remind yourself you can refinance your mortgage when rates come down. 

"You can lock in that mortgage and in a year you can look at refinancing as a way to save money on interest," says Hannah Horvath, a certified financial planner.

Refinancing your mortgage does come with some added costs. You may have to pay closing costs again, for example – but you may still save money. Plus, housing prices may continue to increase, so even if you wait and get a lower rate, you still could end up with a higher monthly payment due to the increased cost of the home.

The bottom line

Mortgage rates have fallen recently, leading mortgage applications to increase at the start of the new year. But with the recent uptick in inflation, rates could start going up again. For this reason, if you want to buy a house, now could be the time to act. If you are worried about rates decreasing over the next year or so, remember that you can always refinance to save yourself money in the future.