Will Mortgage Rates Rise With Inflation?

  • January 25, 2022
  •   •  
  • 3 min. read time
buy a home, mortgage, inflation, mortgage blog

Buying a new home in 2022 can bring a sense of stability and financial security. Especially in the middle of an era where very few things feel certain. Despite unpredictability in almost every area of our lives, mortgage rates have remained historically low these past two years.

Last summer, with signs of economic recovery and a drop in covid, mortgage rates began to shift upward just a bit. Then Omicron arrived along with a new cycle of pandemic exhaustion. Nevertheless, mortgage rates remained low and ended the year hovering near 3.0%. But the economic recovery that seemed hopeful has shifted downward, and inflation is starting to gain ground.

It’s fair to say that the current market is extraordinary and uncommon: the combination of high inflation and low mortgage rates is rare.

Many homebuyers are asking if now is the right time to buy a home. It’s a difficult decision for sure. Will mortgage rates rise? Will the housing market be stable? Will home equity continue to grow? How will the markets react as we move deeper into 2022?

Trends that used to signal predictable movements are now in question. This article can help.

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It’s difficult to imagine rates remaining low for much longer. The link below provides a snapshot of mortgage rates over the past 50 years.

Click here to view the analysis

Follow the inflation rates in the link below, and you’ll find that inflation rates are almost always in sync with mortgage rates. When one rate rises, the other increases. When one drops, the other follows.

U.S. inflation rate from 1960-2022 mapped with mortgage rates:

Click here to view the chart

Based on these historical trends, most mortgage lenders predict rates to rise along with inflation as we move into 2022. But nothing is certain.

If you’re considering buying a home in 2022, now is the time to take action. Rates are still low and home loan terms are favorable for qualified buyers.

Connect with a mortgage advisor to discuss your goals. The right mortgage can help you build financial security through homeownership.

How a Rise in Inflation Affects Mortgage Rates

When many of us consider inflation, we often think of the weekly grocery bill or gas prices going up. We might notice that clothing costs more or eating out has a higher price tag.

In broad terms, inflation happens when prices for goods increase and purchasing power decreases. For example, if the rate of inflation jumps to 10%, then it would take $110 to buy items that would have cost $100. When the rate of inflation starts to rise consistently, everyone feels it in day-to-day expenses like groceries, gas, transportation, and retail goods.

On the flip side, when earnings rise faster than the rate of inflation, buying power increases. As a result, the household dollar can stretch a little further. As a result, people tend to spend more, save more and invest more.

Related: Get started now with a qualified mortgage advisor in your local area

What This Means for Mortgage Rates in 2022

Today, the rate of inflation is rising and if it continues to move upward, it will have far-reaching economic implications–from goods and services to investment returns and yes, mortgage rates.

This is because mortgage rates operate similarly to bonds. When the inflation rate rises, purchasing power is lower, which directly impacts the market that buys and sells mortgages. When buying power decreases, interest rates go up to keep investors fully engaged.

As the rate of inflation increases, the Fed raises interest rates. As interest rates go up, mortgage rates increase, and the rate of return on mortgages continues to keep investors, well, invested.

Meanwhile, new homebuyers applying for a mortgage face a higher mortgage rate.

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How to Decide if Now is the Right Time to Buy a Home

Nothing is certain in economic forecasting, and mortgage predictions are no different. However, the one clear thing is that mortgage rates remain at historic lows. With mortgage rates still below 4%, a mortgage continues to be one of the least expensive ways to borrow money and invest. 

What’s more, with a mortgage, you’re potentially building financial security. With a 30-year fixed-rate loan, your monthly mortgage will be the same for the entire life of the loan. No changes. No surprises. You can build home equity and financial security in the same move.

Talk with a mortgage advisor to discuss your goals and find out if homeownership is your next best move. 2022 could be your year.

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Next Steps

Connect with a mortgage advisor. There are several custom loan options, along with FHA loans, VA loans, conventional mortgages and jumbo loans with great mortgage rates right now. So whether you’re a first-time homebuyer or on your third renovation, the right mortgage can help you toward financial security. We’d love to help.