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Since early 2022, the average 30-year mortgage rate in the United States has risen from about 3% to about 7.6%, as of the latest data. While this makes buying a home far more expensive on a monthly payment basis, there are several things about the rising-rate environment and mortgage rates in general that are not well understood by many prospective home buyers.

Let’s set the record straight. Here are four common mortgage rate misconceptions, and the truth behind each of them.

Myth 1: Rising mortgage rates will lead to lower home prices

This is clearly not a universal truth, as we’ve seen over the past few years. Although the average 30-year fixed mortgage rate in the United States has increased from about 3% to nearly 8% since the beginning of 2022, the median home price has increased by 10% since then.

However, you may have heard statements like “real estate is about to crash — these higher rates will make prices fall.” Maybe, but maybe not.

The reality is that there are many different dynamics that influence home prices, but mortgage rates aren’t the biggest factor. Overall inflation is a big one, and housing supply is another. In fact, the main reason why home prices have continued to rise is a historically low supply of existing homes on the market. There are actually fewer existing homes on the market today than at the peak of the COVID-19 lockdowns, when people literally couldn’t leave their homes to go house hunting.

Myth 2: When the Federal Reserve cuts rates, mortgage rates will fall

To be sure, mortgage rates tend to move in the same direction as the federal funds rate, which is the main benchmark interest rate that is being referred to when you hear “the Fed raised interest rates.”

However, they don’t have a perfect correlation, and it’s entirely possible for mortgage rates and the Fed’s rate activities to do the opposite of one another. For example, in 2017, the Federal Reserve hiked rates several times, but mortgage rates actually declined. And there’s no reason the opposite couldn’t happen.

Myth 3: All lenders have the same mortgage rates

According to a report by LendingTree, 56% of mortgage borrowers accepted the first mortgage rate offer they received. And about half of that group said they were confident they got the best rate. To be perfectly clear, this is one of the costliest home-buying mistakes you can make.

Specifically, many people believe that all mortgage lenders have basically the same interest rates. And others think that a small difference — say, one-eighth of a percentage point — doesn’t really matter. Well, they don’t all have the same rates, and you’d be surprised the difference shopping around can make.

Consider this. Let’s say that you want to buy a $500,000 home with 20% down, so you’ll need a $400,000 mortgage loan. You get two loan offers for 30-year fixed-rate mortgages. The first, from a lender you like, has an APR of 7.625%. The second offers you a lower 7.5% APR, a one-eighth percentage point difference. You might be surprised to learn that the latter will save you more than $12,000 in interest over the 30-year term of the loan. You can plug numbers into a mortgage calculator to see how much you’ll pay based on the interest rate you get.

Myth 4: When rates are high, it’s a bad time to buy a home

Finally, it’s a very common myth that when rates are high compared with recent history, it’s a bad time to buy a home. Logically, this makes sense.

However, there are some factors to consider. For one thing, buyer competition is significantly lower in a high-rate environment. And second, while it’s true that your monthly cost will be significantly higher than if you bought a year or two ago, remember that you aren’t necessarily locked in to the same monthly payment for three decades. If rates drop, it’s easy enough to refinance your mortgage and take advantage.

Plus, there’s a solid argument to be made that buyers have become used to higher rates, and if rates start to fall sharply, it could actually push home prices higher. Real estate expert and Shark Tank star Barbara Corcoran has recently predicted this exact scenario.

The bottom line

By knowing how mortgage rates work and how lenders use them, you’ll be in a better position to make financially sound decisions when shopping for a mortgage and deciding when to start your own home search. One final point is that nobody knows exactly what mortgage rates are going to do in the future — anyone who says otherwise is lying. So, it’s wise to approach the market as if mortgage rates could drop to 5% next year or could rise to 10% just as easily.

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