News & TrendsHow Does Rising Inflation Influence Refinance Rates?

How Does Rising Inflation Influence Refinance Rates?

Due to high inflation, cash-strapped Americans currently face an unwelcomed rise in the cost of living. According to The New York Times, “overall prices rose 6.2 percent over the past 12 months, the fastest pace since 1990, and inflation began to accelerate again every month”.

Drivers face rapidly accelerating costs, as the price of oil has been up 50% over the last year. Used cars are up 26%, while new vehicles are up 10%. Americans are also paying more for everyday essentials like food, as beef is up 20%, bacon and sausage is up 15%, and eggs are up 12%.

How can prices rise so quickly? This trend is primarily a result of supply chain disruptions, national labor shortages, and rising production and shipping costs. In short, companies are struggling to meet demand as America emerges from the pandemic-fueled recession, so businesses are passing increased costs onto the consumer.
Does Rising Inflation Influence Mortgage Refinance Rates?
Rising inflation typically leads to higher mortgage rates because mortgage interest correlates to the country’s overall economic trends. If the economy is strong and inflation increases, mortgage rates tend to rise. If the economy is weak and inflation decreases, they usually trend down.

Fixed-rate mortgage rates highly correlate with 10-year Treasury bond rates. When the Treasury rate increases, mortgage rates tend to do the same. When inflation is high and expected to grow higher, investors will push the Treasury bond yield higher as they demand a more generous return that accounts for rising inflation. High inflation causes a rise in Treasury rates, which will put upward pressure on mortgage rates.

Inflation rates, treasury bonds, and the nation’s overall economic environment all work together to affect mortgage interest. However, inflation and mortgage rates usually rise and fall with each other.

Is Now Still a Good Time to Refinance?

30-year fixed-rate mortgages climbed up to 3.14% in mid-October but noticeably declined to 2.98% in the second week of November. Current mortgage rates are near all-time lows and are far lower than a few years ago. Consult the graphic below to see how far interest rates have plummeted over the last three years.

Source: Freddie Mac

So is now the time to refinance your mortgage? The short answer is yes, as long as refinancing the current rates are lower than the interest rate you have now.

Low interests rates won’t stay around forever, so you should pull the trigger on refinancing sooner rather than later. According to the Mortgage Bankers Association, total mortgage originations will decline by 33% in 2022, as interest rates on the 30-year fixed mortgage will increase to 4%, a whole basis point more than the current 3% rate.

Tyler Williams

Tyler graduated from Virginia Commonwealth University in 2017 with a Bachelor's degree in Urban and Regional Studies. Currently based in Los Angeles, he works as a freelance content writer and copywriter for companies in real estate, property management, and similar industries. Tyler's main professional passion is writing about critical issues affecting big and small cities alike, including housing affordability, homelessness, inequality, and transportation. When he isn't working, he usually plans his next road trip or explores new neighborhoods and hiking trails.