Soaring Inflation Could Mean Higher Mortgage Rates
By Ann WhiteHomebuyers take note that soaring inflation could mean higher mortgage rates and a reason to move quickly to buy a home or refinance before increases.
Mortgage Rate Trends Fluctuate over Time
For the past several years, new homebuyers and those wishing to refinance an existing mortgage have enjoyed a long period of low interest rates. Unfortunately, this trend fluctuates over time and mortgage interest rates will at some point rise. Several factors influence the change in the mortgage industry as shown in past periods where inflation begins to affect the economy. For anyone considering purchasing real estate or thinking about refinancing an existing loan, knowing why inflation could mean higher mortgage rates is a valuable tool. Significant dollars may be saved by securing a loan in advance of a higher interest rate trend where the key is to act quickly before a large jump occurs. Watching economic market trends and being aware of projected forecasts could place consumers in an advantageous position when seeking a new mortgage.
The Fear of Inflation Influences Mortgage Rates
Most economists realize that when the prime lenders increase interest rates it affects all aspects of the economy. Mortgage rates, personal credit loans and other financing options are offered to consumers at a new higher rate almost immediately. What is harder to predict, however, is when a forecasted trend actually influences lenders to raise rates. For example, the Wall Street Journal may publish an article about the possibility of significant inflation in the last quarter of the year. Financial managers who read the report may react in fear of losing potential business and recommend rate increases quickly, possibly before other institutions follow suit. The thought that soaring inflation could mean higher mortgage rates becomes translated to an actual increase passed on to potential mortgage applicants. Forecasted inflation could cause a fear reaction where banks and lending institutions arbitrarily decide to raise rates.
The Affect of Inflation and Deflation on Mortgage Rates
Mortgage rates in the U.S. are controlled by Mortgage Backed Securities (MBS) and are traded on the market similar to other stocks and bonds. These securities are considered a fixed investment and are often attractive when the economy is experiencing deflation or loss of income from other types of stocks. As inflation occurs and the trading market switches to other more desirable investments that generate higher yields, MBS securities become less attractive and the demand eventually decreases. During periods of economic deflation, more consumers are likely to purchase mortgages and invest in mortgage securities. The opposite affect occurs when soaring inflation could mean higher mortgage rates and often lasts for a period of several years. The result in the change from a deflated market to an inflated one causes an eventual rise in mortgage rates. Not all economic trends follow a set pattern of number of years or indicating factors so predictions are often somewhat hazy. However, when inflation actually occurs, historical trends indicate that mortgage rates will rise.
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