Inflation has been a major issue for the global economy in recent years. And if you’re real estate minded (like we think you are), you might wonder how inflation has impacted mortgage rates.
Inflation is the rate at which the general level of prices for goods and services is rising. When inflation is high, the cost of borrowing money goes up, as lenders need to charge higher interest rates to compensate for the decreased purchasing power of their currency.
Rising mortgage rates can negatively affect the housing market. As mortgage rates increase, it becomes more expensive for borrowers to buy a home or refinance their existing mortgage. This can lead to a decrease in demand for homes, which can cause home prices to stagnate or even decrease in some cases.
Yet, things don’t happen in a vacuum. Housing inventory continues to be at record lows. There are two reasons for this. One, new construction is at a 50-year low. Two, many would-be sellers are locked into extremely low-interest rates and have become “accidental landlords.”
However, recent data suggests that inflation has started to come down and is expected to continue to decrease. This is good news for homeowners and potential homebuyers, as it could lead to better mortgage rates shortly.
What can you do to take advantage of this opportunity? Here are a few suggestions:
Refinance your mortgage
If you weren’t one of the fortunate borrowers who snagged a 3% rate in 2021, you might soon benefit from lower rates. With inflation expected to decrease, mortgage rates will likely follow suit. If you bought a home recently, this could be an opportunity to refinance your mortgage at a lower interest rate, saving you thousands of dollars in the long run.
Pay down your debts
When inflation is high, the cost of borrowing money goes up. So focus on paying off high-interest debt, such as credit card balances and personal loans, as quickly as possible. This will help you save money on interest payments and improve your overall financial health.
Consider alternative investments
Inflation can hurt traditional investments like stocks and bonds. But other investment options, such as real estate and commodities, can help protect your portfolio from inflation. For example, real estate can provide a hedge against inflation, as home prices tend to rise during inflationary periods.
In summary, inflation can hurt mortgage rates, making it more expensive for borrowers to buy a home or refinance their existing mortgage. However, recent data suggests that inflation is expected to decrease, which could lead to better mortgage rates for consumers in the next several months and quarters. By refinancing your mortgage, paying down your debts, and considering alternative investments, you can help protect your finances from the effects of inflation.
If you have any questions or concerns, please contact us. We’re here to help you make smart financial decisions.