Now that mortgage rates are soaring, are Americans making a big mistake?

As mortgage rates suddenly shoot to heights not seen in months, borrowers are backing away and demand for home loans is falling, according to new data from a lenders trade group.

Experts who keep a close eye on rates say consumers may have the wrong idea and could wind up being sorry.

Homebuyers who are on the fence, and homeowners who still haven’t refinanced to slash their monthly mortgage payments, will be filled with regret if rates go higher still — which is how the signs appear to be pointing.

Mortgage demand takes a dive

Mortgage applications plummeted 11.4% in the week ending Feb. 19, the Mortgage Bankers Association, or MBA, reported on Wednesday.

That happened as mortgage rates rose sharply.

“Mortgage rates have increased in six of the last eight weeks, with the benchmark 30-year fixed rate last week climbing above 3% to its highest level since September 2020,” says Joel Kan, the MBA’s forecaster.

The average for a 30-year fixed-rate mortgage jumped to 3.08% in the trade group’s weekly survey, from 2.98% a week earlier.

The higher rates helped drive refinance applications down 11% last week to their weakest level since December. And, refi loans continued to lose their dominance: They accounted for 68.5% of all mortgage applications last week, down from 69.3% the previous week.

But last week’s refinance activity was still up 50% from a year ago, the MBA says.

The risk of even higher mortgage rates

Homeowners considering a refi aren’t the only ones getting spooked by higher mortgage rates. Applications for new, homebuyer mortgages — called “purchase loans” — sank 12% last week but were 7% higher than last year.

If you’re a would-be borrower, sidelining yourself and waiting for lower rates to return could be a major miscalculation. After all, what if rates just keep rising, instead of retreating?

“There are no obvious and immediate events on my radar that might trigger such a switch and bring significantly lower mortgage rates anytime soon,” writes Peter Warden, editor of the website The Mortgage Reports.

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Given the risk of even higher rates, Warden is advising his readers to lock a mortgage rate today, whether they’ve got a loan that’s closing in seven days or 60.

Rates are going up because the interest on Treasury bonds is skyrocketing. Mortgage rates tend to track the yield on the 10-year Treasury note, which topped 1.4% on Wednesday for the first time since February 2020.

Analysts say the soaring bond yields are a sign investors are worried that vaccinations and stimulus checks will soon have the economy booming — and will fire up inflation. Federal Reserve Chairman Jerome Powell told Congress this week that inflation is still “soft,” but the bond market apparently isn’t buying it.

Borrowers may have no time to waste

Last week’s brutal winter weather in Texas caused a more than 40% drop in mortgage applications in the Lone Star State and contributed to the drop in mortgage demand nationwide, Kan says. But that weakness largely resulted from steeper mortgage rates.

If that’s the reason you’re holding back on a home loan, here’s a reality check: Mortgage rates are still historically low. Roughly one year ago, the MBA had 30-year mortgage rates averaging 3.73%, versus just 3.08% last week.

An estimated 16.7 million homeowners have the potential to save more than $300 a month by refinancing — swapping out their current loans for new ones with lower rates, the mortgage technology and data provider Black Knight reported this month.

You’re considered a good refi candidate if you’ve got a solid credit score and at least 20% equity in your home.

To find the lowest possible rate — whether you’re a refinancing homeowner or are a homebuyer — it’s vital to shop around and compare at least five rate offers, because mortgage rates can vary widely from one lender to the next.

Don’t let those comparison shopping skills go rusty, because they also come in handy when you buy or renew your homeowners insurance. Review prices from several insurers to find the best deal on your coverage.