How Inflation Affects Mortgage Rates

When you read about the housing market in the news, you might see something about a recent decision made by the Federal Reserve (the Fed). But how does this decision and inflation affect you and your plans to buy a home? Here’s what you need to know.

inflation affects mortgage rates

The Fed is trying hard to reduce inflation. And even though there’s been 12 straight months where inflation has cooled, the most recent data shows it’s still higher than the Fed’s target of 2%.

While you may have been hoping the Fed would stop their hikes since they’re making progress on their goal of bringing down inflation, they don’t want to stop too soon, and risk inflation climbing back up as a result. Because of this, the Fed decided to increase the Federal Funds Rate again last week. As Jerome Powell, Chairman of the Fed, says:

“We remain committed to bringing inflation back to our 2 percent goal and to keeping longer-term inflation expectations well anchored.”

Even though a Federal Fund Rate hike by the Fed doesn’t directly dictate what happens with mortgage rates, it does have an impact. As a recent article from Fortune says:

“The federal funds rate is an interest rate that banks charge other banks when they lend one another money . . . When inflation is running high, the Fed will increase rates to increase the cost of borrowing and slow down the economy. When it’s too low, they’ll lower rates to stimulate the economy and get things moving again.”

How All of This Affects You

In the simplest sense, when inflation is high, mortgage rates are also high. But, if the Fed succeeds in bringing down inflation, it could ultimately lead to lower mortgage rates, making it more affordable for you to buy a home.

Since inflation is slowly coming down and, based on historical trends, mortgage rates are likely to follow. Now is the time to talk so you can get expert advice on mortgage and housing market changes and what they mean for you.

Why Rising Rent Prices Means It Is Time to Buy


According to a recent Freddie Mac report, Orlando is the fifth most rent-burdened metro area in the United States. As cities throughout Central Florida share drastic rises in rent, tenants are questioning whether  they should renew their leases or jump into homeownership. If you’re contemplating an upgrade from a lease to a home loan, here are a few great reasons to make the switch.

Stop Paying Someone Else and Start Building Equity

Instead of being locked into a lease that increases year after year making it hard to get ahead, consider locking in a low mortgage rate and putting your monthly payment towards an actual investment. As you pay down your mortgage, you are essentially paying yourself by building equity in your home. In fact, home equity is the largest asset for a majority of Americans.

Take Advantage of Relaxed Mortgage Guidelines

There are countless mortgage options to suit first time or repeat buyers. The two agencies that support most of the mortgages in the United States, Freddie Mac and Fannie Mae, have relaxed their guidelines in recent years, allowing for higher debt to income ratios. Additionally, both Freddie Mac and Fannie Mae now allow applicants to finance even more of their purchase price, up to 97%, which makes it a great time to purchase a home with very little money out of pocket.

High Rents, But Low Rates

Supply and demand is driving rent prices into historical highs, but the opposite is happening with mortgage rates for various reasons. Rates are at a nearly historical low for loans of all terms. Take advantage of this now before rates start going back up. An increase in a mortgage rate of even 1% could cause you to pay hundreds of dollars more each month on your loan.

Get Started on Mortgage Applications

If you’re ready to outsmart Central Florida rent, partner with the mortgage professionals at Butler Mortgage. Our team can walk you through a series of mortgage solutions until you select an option that fits your finances. For more information on your mortgage decision, complete our free consultation form or call 407-931-3800.