How rising inflation rates can affect your mortgage


As inflation rises, so does the cost of everything, including real estate. However, if you can get a low-interest fixed-rate mortgage, the cost of your home – an increase in value – will stay the same as the value of your property increases.

For those who already have a mortgage and may be concerned about the effects of inflation, now is the time to refinance. It is very likely that interest rates will rise rather than fall in the coming year.

With mortgage rates rocketing – the average 30-year mortgage rate was 3.24% for the last week of the year – an increase in rates is unlikely to slow the highly competitive US housing market.

This means that new homebuyers may have less purchasing power. It also means that homeowners considering refinancing shouldn’t miss their chance at a low interest rate.

Real Money official Ed Ponsi says we’re stuck between inflation and other economic concerns and the turn of the pandemic for the worse. But he has a sweet stock to buy and hold for the new year, with charts and a tasty reason why. Read more about it and get more real money investment ideas.

“Increased inflation, coupled with a less responsive Federal Reserve in 2022, suggests higher than lower mortgage rates. Homeowners who have not yet refinanced should do so now as any rate hike over the next year could undermine potential savings, ”said Greg McBride, senior vice president and chief financial analyst at

But for home buyers, McBride said, “The shortage and price of homes for sale will continue to be the main barriers. Mortgage rates will still be very attractive next year, so you don’t have to worry too much about that, ”he says.

Read: The Organization for Economic Cooperation and Development now expects average price inflation of 4.4% in 2022, compared to 3.1% in the September forecast.

The Mortgage Bankers Association predicts the average 30-year fixed-rate mortgage rate will reach 3.7% by the third quarter of 2022 and 4% by the end of 2022. That would be a sharp increase over the current interest rate and is well above the 3.4% rate that Fannie Mae predicts by the end of 2022.

U.S. inflation accelerated to the fastest pace in four decades, according to the Bureau of Labor Statistics, as rising energy, rental and used car costs put consumer prices under pressure. This cements high inflation as a hallmark of pandemic recovery and the erosion of purchasing power even as wages rise.

More in our inflation series:

Mortgage rates have a significant impact on the total long-term cost of buying a home through financing. Mortgage rates were near the all-time low this year, although inflation has risen sharply in large parts of the economy.

While borrowers’ financial health affects the interest rate they are offered on a loan, economic factors and government monetary policies affect the entire mortgage rate process.

The Federal Reserve helps regulate inflation by raising, maintaining, or lowering interest rates, which has a powerful impact on the overall economy. Your actions affect everything from the cost of borrowing in the property market to bond yields to the prices of commodities such as commodities.

Ultimately, inflation could allow borrowers to repay lenders with money worth less than the original borrowing money, benefiting borrowers.

Inflation has historically been lower than the average interest rate on a 30-year mortgage. But since April inflation has been above the average long-term mortgage rate. The last time inflation was higher than the average 30-year home loan rate was in August 1980, according to the Federal Reserve.

How to Get the Best Mortgage Rate

Even in the face of inflation, there are steps you can take to get the best mortgage rate. Most importantly, if you follow these steps to get the best mortgage rate, you can save real money in the long run. Whether you are buying a home or refinancing, these tips can help you.

Work on your creditworthiness. If your score is below 760, it’s worth improving your credit score by taking steps to clear your balance and make all of your payments on time. With excellent credit, you are entitled to the lowest mortgage rates.

Reduce Your Debt. This one step can help you get the best mortgage rate in two ways. It will lower your debt-to-income ratio, which lenders consider when approving loans, and it will also improve your credit score.

Apply to at least three lenders. Thousands of mortgage lenders compete for your business. Another way to ensure you are getting the best mortgage rate is to apply to at least three lenders and find out which one gives you the lowest rate. Lenders are required to provide you with a loan estimate. This document shows you the interest rate and closing cost of the loan, as well as other important details such as: B. the cost of the loan in the first five years. Use this to see which lender has the best price and the best overall deal.


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