The Honest Broker: Inflation is Negatively Affecting Mortgage Rates

The Honest Broker: Inflation is Negatively Affecting Mortgage Rates

By:  Diane Lott, Broker  Paradise Found Realty

The inflation rate itself is generally expressed as a percentage increase in prices over a 12-month period. Most developed countries try to keep their inflation rates between 2-3%.  Hyperinflation is excessive inflation that rapidly erodes the real value of currency. Inflation has been taking its’ toll on everything that we buy; food, clothing, building supplies, etc. over the last year and a half.  Our inflationary rate is now at 8.5%, the highest rate since January 1982, 40 years ago.

In trying to curb this hyperinflation, the Federal Reserve increased the borrowing rate by .5% this week.  By the “Fed” increasing the borrowing rate this aggressively, we will see an increase of rates when applying for credit and borrowing, specifically in mortgages. Borrowers will begin to see it in their credit card rates, and any other variable-type rate like a home equity line of credit. And in the long term it’ll affect their auto loan rates.

A rough rule of thumb is that: Each quarter-point swing in interest rates, up or down, changes the amount you can afford to borrow by about 3%. If rates were to increase by 1 percentage point, then you’d have to decrease the amount you borrow by about 12% to get the same monthly payment.

This approximation can be handy when you think about how a change in interest rates might affect your ability to afford a home in a certain price range. If you wanted to borrow $250,000, but mortgage rates rise 1%, you might have to start shopping for a mortgage around $225,000 or increase your down payment by about $25,000 to keep the monthly payment the same. 

Current mortgage rates in Florida are 5.39%, for a 30-year fixed loan, 4.66% for a 15-year fixed loan and 4.19% for a 5/1 ARM (Adjusted Rate Mortgage). With rates rising, will this slow down home buying? Will buyers be discouraged to proceed with buying a home or decide to wait and rent?  If buyers retreat, how will this affect home sales and prices?  We will have to see….

Be Well!


Diane Lott, Broker

Owner: Paradise Found Realty

*The highest compliment you can give is when you feel you can refer a friend…
  Hope to see them soon!

Paradise Found Realty, Inc. of Palm City



Phone:  954-294-5060

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  • Posted 2 years ago

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