Mortgage rates are on the rise. Some experts say that mortgage rates will continue to go up as long as low inflation and investors have a high appetite for risk. It is important for people considering buying a home to understand what it means.
Here is why mortgage interest rates are going higher, how it affects the economy, and what you can do about it if you’re thinking of purchasing a property soon.
What Causes Mortgage Rates to Rise
Mortgage rates and interest rates throughout the economy follow a pattern. There is an inverse relationship between long-term interest rates and inflation. If you are not familiar with this economic term, think of how much prices for goods or services rise every year about that year’s average income growth.
Inflation reduces purchasing power and erodes the value of money. When investors anticipate higher inflation in the future, they demand a higher rate of return for lending their money for a more extended period. This is because lenders want to be compensated for the erosion of purchasing power when they loan money out over an extended period.
How Does High-Interest Rates Curb Inflation
Inflation is a general increase in the price level of goods and services. It’s when money loses its value over time due to the rise in prices. In addition, inflation is also caused when there are more dollars in circulation, which could be due to the Fed printing money. A higher interest rate will make borrowing more expensive, so people would instead save their money than spend it on loans or other items they don’t need.
Suppose there is a high rate of interest. In that case, people can borrow at a lower cost, making it possible for more firms and consumers to take out loans since they are being charged less in interest rates due to the increase in demand.
What Happens when the Dow Tumbles
The Dow recently tumbled on January 10, 2022, when it was announced that the Fed’s plan to raise interest rates 4 times in 2022 was not going to be enough to address out-of-control inflation.
The Dow tumbled over 700 pointes before have a loss of just under 200 points for the day. The Dow tumbled on this news because investors know that higher interest rates will affect consumers habits.
What Does This Mean for Mortgage Rates
At the moment, it is still unclear what will happen to mortgage rates if and when interest rates start to go up. However, it is safe to say that they will probably increase. So, if you are thinking of buying a home soon or refinancing your current mortgage, it might be a good idea to do so sooner rather than later.
Why Should You Buy Interest Rates Down
There are several benefits of buying interest rates down, chief among them being that you can save yourself a lot of money in the long run. By locking in a low-interest rate now, you can ensure that your mortgage payments will remain affordable for a long time.
This also means that you can keep more of your money in the bank and not have to worry about making extra mortgage payments later on when rates go up again.
What High-Interest Rates Means for You
It is crucial to understand when the interest rates are high and low. It is essential to know how the interest rates work to decide what is best for you financially.
Therefore, when it comes to mortgages, there are several things to consider when deciding if now is the time to buy. Talk to a financial advisor to get their opinion on what might be best for you.
If you’ve been thinking about purchasing a home or commercial property but are unsure of your credit capability, Contact George Tallabas at 208-880-2333 and let me put you in touch with some lenders who might help. Private money real estate loans may be just the solution you need to take that step to pursue your dreams.