Average 30- and 15-year mortgage rates were little changed in the week ended Jan. 27, bringing some relief to borrowers after rate hikes hit record highs in the first two weeks of the month.

The average interest rate on a 30-year fixed-rate mortgage fell one basis point this week to 3.55%; Meanwhile, the average interest rate on a 15-year fixed-rate mortgage rose a basis point to 2.8%, according to Freddie Mac’s Primary Mortgage Market Survey. Those moves were minimal compared to the 30 basis point jump earlier this month and marked the biggest rise since March 2020.

The only loan type that rose significantly this week was the 5/1 Adjustable Rate Mortgage (ARM), which rose 10 basis points to 2.7% from last week. This follows the Federal Open Market Committee (FOMC) meeting earlier this week, when the FOMC announced it would raise the federal funds rate in March, a move that will put upward pressure on ARM rates.

What’s coming up for mortgage rates based on the Fed meeting

Although the FOMC left the federal funds rate — a benchmark rate that affects adjustable-rate loans — untouched last meeting, rate hikes are not far off. For now, the federal funds rate will remain on target at 0-0.25%, but as the Fed hikes rates, rates on certain types of loans, such as ARMs, will also rise.

For borrowers with ARMs, this is a good time to refinance into a fixed-rate mortgage as interest rates are expected to rise as early as March.

The Federal Funds Rate is one of the FOMC’s monetary policy tools. Quantitative easing (QE) — the technical term for its large bond-buying program — is another. The Fed has started reducing its QE asset purchases by $30 billion a month and the program ends in March. This will likely drive up mortgage rates.

What Borrowers Should Do When Mortgage Rates Rise

The rise in mortgage rates this year has halved the pool of potential borrowers who can save money by refinancing. According to Black Knight, a data analytics firm, the number of eligible borrowers as of Jan. 21 was 5.9 million, up from 11 million at the start of the year.

Here’s an example of how much refinance-eligible candidates could save based on those who could lower their mortgage rates now.

Source: Black Knight

Rising interest rates have slowed refinancing activity as the number of mortgage refinances in the week ended January 21 fell 13% from the week before, according to the Mortgage Bankers Association’s latest weekly survey of mortgage applications.

“Unsurprisingly, borrower demand for refinancing eased, with requests falling for the fourth straight week,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a statement. “After nearly two years of lower interest rates, there aren’t many borrowers left with an incentive to refinance. For those who are still in the market to refinance, these higher rates are proving to be much less attractive to them.”

Still, MBA projections will remain around 4% through the end of 2022, which is relatively low compared to historical rates.

Black Knight estimates that there are currently more than 1 million borrowers who could save at least $400 a month by refinancing, and around 660,000 borrowers can save an average of $765 a month by locking in a lower interest rate.