s Interest Rate Forecast For 2022
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HELOC: 5.05 percent The Fed directly influences interest rates on and , meaning rates are bound to creep higher in 2022 and move in lockstep with each Fed rate hike. Existing borrowers, however, will only be impacted if they have a variable-rate loan. Borrowing costs on home equity loans, for example, are fixed, meaning their interest rate lasts for the entire life of the loan. HELOCs are variable, and they’re the most common form of home equity borrowing.
“If the Fed raises rates a quarter point, your rate is going to go up a quarter point within one to two statement cycles,” McBride says. Even so, the average HELOC rate is bound to move up at a faster pace than the Fed, McBride adds. That’s because lenders will be phasing out many of their promotional offers, some of which have been below 3 percent. McBride’s forecast shows the average HELOC rate climbing to 5.05 percent by the end of 2022, about 78 basis points higher than where it settled at the end of 2021. McBride sees the average home equity loan rate climbing to 6.25 percent by the end of 2022, just 29 basis points higher than a year earlier. For more details, read .
A should average 0.35 percent nationally in 2021, while a should average 0.56 percent nationally, according to McBride’s forecast. Other popular vehicles — and — should average nationally at 0.12 percent and 0.11 percent, respectively, by the end of 2022. Even so, savvy savers can find more attractive offerings by shopping around. The best deals on the market will come from nontraditional, online banks that are able to offer more competitive , McBride says. Top-yielding one-year and five-year CDs should reach 1.25 percent and 1.75 percent, respectively, while the average rate on a money market and savings accounts should reach 1.05 percent by the end of 2022. Next year’s higher rates “are going to be a hollow victory,” McBride says. “It’s going to be tough for the Fed to get inflation down to 2 percent. Even if they hike rates a few times, it doesn’t mean deposits are earning 2 percent.” For more, read and .
4-year used car loan: 4.85 percent McBride expects to gradually creep higher, though not necessarily at a faster pace than the Fed’s rate hikes — similar to the Fed’s previous tightening cycle between 2015 and 2018. He sees the average interest rates on a five-year new car loan reaching 4.4 percent by the end of 2022, while the average rate for a four-year used car loan will be 4.85 percent. For borrowers with strong credit history, the lowest rate offered on the market could remain below 4 percent on both new and used loan products throughout the year. That’s not to say buying a car could be cheap. New vehicle inventory in the U.S. dropped 65 percent in 2021, according to the . Meanwhile, a chip shortage has weighed heavily on manufacturing. That all means fewer deals at the dealership and more expensive price tags, regardless of how rates behave in 2022.
“Rates are the least of your concerns if you’re in the market for a car,” McBride says. For more details, read .
“For existing cardholders, the rates they see this time next year are going to be directly tied to how active the Fed is,” McBride says. “That definitely puts an emphasis on paying down that credit card debt as quickly as you can.” Similar to a HELOC, credit card rates will rise within one to two statement cycles of a Fed rate hike. Existing cardholders’ terms won’t change unless they become 60 days delinquent, but new card offers in 2022 will come with higher rates. As always, cardholders won’t be affected by higher rates at all if they pay off their balance each month. For more details, read . SHARE: Sarah Foster covers the Federal Reserve, the U.S. economy and economic policy. She previously worked for Bloomberg News, the Chicago Tribune and the Chicago Daily Herald. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money.
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Mortgage rates will climb modestly but expect a rate roller coaster
30-year fixed rate mortgage: 3.5 percent When the novel virus first swept the nation, experts foresaw the pandemic wreaking havoc on the housing market. The exact opposite happened. An aggressive Fed, all-time low mortgage rates and city-fleeing Americans helped send the sector booming. Though the cost of borrowing for a home will still be historically cheap in 2022, would-be homebuyers might miss out on the chance to score a mortgage below 3 percent. McBride sees the peaking in 2022 at 3.75 percent and finishing the year at 3.5 percent, which would be the highest since May 2020. How mortgage rates play out : inflation and the 10-year Treasury yield, which lenders use as the benchmark for mortgage rates. Both also tend to influence each other, with the key 10-year rate partially reflecting investors’ inflation expectations. McBride sees inflation in 2022 moderating notably from its 2022 highs to an annual rate of around 3 percent, while he expects the key bond rate to hit a high of 2 percent and then drift down to 1.7 percent. The key rate hasn’t eclipsed 2 percent since the middle of 2019. “Long-term rates will move higher in the first half of the year, but by the close of 2022, concerns about slowing economic growth will be unwinding that and bringing them back down,” McBride says. “This means a roller coaster ride for mortgage rates.” For more details, read .Home equity loans will get costlier with the popular HELOC rising faster than the federal funds rate
Home equity loan: 6.25 percentHELOC: 5.05 percent The Fed directly influences interest rates on and , meaning rates are bound to creep higher in 2022 and move in lockstep with each Fed rate hike. Existing borrowers, however, will only be impacted if they have a variable-rate loan. Borrowing costs on home equity loans, for example, are fixed, meaning their interest rate lasts for the entire life of the loan. HELOCs are variable, and they’re the most common form of home equity borrowing.
“If the Fed raises rates a quarter point, your rate is going to go up a quarter point within one to two statement cycles,” McBride says. Even so, the average HELOC rate is bound to move up at a faster pace than the Fed, McBride adds. That’s because lenders will be phasing out many of their promotional offers, some of which have been below 3 percent. McBride’s forecast shows the average HELOC rate climbing to 5.05 percent by the end of 2022, about 78 basis points higher than where it settled at the end of 2021. McBride sees the average home equity loan rate climbing to 6.25 percent by the end of 2022, just 29 basis points higher than a year earlier. For more details, read .
Savers could see modestly higher yields but nothing to brag about
One-year CD: National average: 0.35 percent Top-yielding: 1.25 percent* Five-year CD: National average: 0.56 percent Top-yielding: 1.75 percent* Money market accounts: National average: 0.12 percent Top-yielding: 1.05 percent* Savings accounts: National average: 0.11 percent Top-yielding: 1.05 percent* *Top-yielding, nationally available bank offers Savers might think they should cheer the news that rates will climb in 2022, but all signs point to a likelihood that offerings won’t be that much more attractive. Financial firms are still swimming in a pool of deposits, meaning they’re unlikely to have to compete for cash by lifting yields. All the while, cash that’s sitting around will lose its purchasing power thanks to elevated inflation that’s outpacing banks’ offerings.A should average 0.35 percent nationally in 2021, while a should average 0.56 percent nationally, according to McBride’s forecast. Other popular vehicles — and — should average nationally at 0.12 percent and 0.11 percent, respectively, by the end of 2022. Even so, savvy savers can find more attractive offerings by shopping around. The best deals on the market will come from nontraditional, online banks that are able to offer more competitive , McBride says. Top-yielding one-year and five-year CDs should reach 1.25 percent and 1.75 percent, respectively, while the average rate on a money market and savings accounts should reach 1.05 percent by the end of 2022. Next year’s higher rates “are going to be a hollow victory,” McBride says. “It’s going to be tough for the Fed to get inflation down to 2 percent. Even if they hike rates a few times, it doesn’t mean deposits are earning 2 percent.” For more, read and .
Auto loan rates will heat up in 2022 though shortages might be bigger cost-related worry
5-year new car loan: 4.4 percent4-year used car loan: 4.85 percent McBride expects to gradually creep higher, though not necessarily at a faster pace than the Fed’s rate hikes — similar to the Fed’s previous tightening cycle between 2015 and 2018. He sees the average interest rates on a five-year new car loan reaching 4.4 percent by the end of 2022, while the average rate for a four-year used car loan will be 4.85 percent. For borrowers with strong credit history, the lowest rate offered on the market could remain below 4 percent on both new and used loan products throughout the year. That’s not to say buying a car could be cheap. New vehicle inventory in the U.S. dropped 65 percent in 2021, according to the . Meanwhile, a chip shortage has weighed heavily on manufacturing. That all means fewer deals at the dealership and more expensive price tags, regardless of how rates behave in 2022.
“Rates are the least of your concerns if you’re in the market for a car,” McBride says. For more details, read .
Credit card rates will move closer to pre-pandemic levels
Average annual percentage rate (APR): 16.9 percent Credit card rates are sensitive to Fed hikes because they follow the prime rate, which consistently holds 3 percentage points above the top range of the federal funds rate. Two quarter-point rate hikes mean that the prime rate will rise to 3.75 percent in 2022, though actual credit card APRs depend on cardholders’ assessed credit worthiness and the margin that firms charge on top of the prime rate to make money. The average credit card rate will rise to 16.9 percent by the end of 2022, according to McBride’s forecast. That would be the highest since March 2020, reflecting a 60 basis point increase from a year earlier.“For existing cardholders, the rates they see this time next year are going to be directly tied to how active the Fed is,” McBride says. “That definitely puts an emphasis on paying down that credit card debt as quickly as you can.” Similar to a HELOC, credit card rates will rise within one to two statement cycles of a Fed rate hike. Existing cardholders’ terms won’t change unless they become 60 days delinquent, but new card offers in 2022 will come with higher rates. As always, cardholders won’t be affected by higher rates at all if they pay off their balance each month. For more details, read . SHARE: Sarah Foster covers the Federal Reserve, the U.S. economy and economic policy. She previously worked for Bloomberg News, the Chicago Tribune and the Chicago Daily Herald. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money.