The Fed expects the economy to hit its target level of inflation next year. As a result, it also expects to raise short-term rates three times, by a total of 75 basis points. In reality, rate moves could be less—but they also could be more.  This means mortgage interest rates like we’ve seen for most of the past five years are indeed history.

Mortgage rates will move higher before the Fed acts again, so if the Fed carries out its three planned hikes in 2017, we could come close to 5% on 30-year conforming rates before the end of next year.  The move toward 5% will not likely be smooth, gradual, or immediate.  Instead, rates will likely jump in intervals, based on whatever new positive economic data emerges.  Mortgage rates will likely stay in the current range for the next two months or so, meaning we may see some day-to-day volatility but little consistent movement up from where rates ended on Wednesday (the average 30-year conforming rate was just under 4.2%).

As the year progresses, rates are likely to move.  Mortgage rates are most likely to move in the month ahead of each key Fed policy meeting. The most important meetings are in March, June, September, and December next year—so home buyers, mark your calendars!

If you intend to buy next year and finance the purchase with a mortgage, acting sooner rather than later will cost you less.  On a typical median-price home with 20% down, the monthly principal and interest payment would be $978 at Wednesday’s rate of 4.2%. That same home at 4.5% would cost $35 more per month. If we reach 5%, that monthly payment goes up to $1,074, or almost $100 more per month than where it is now.