How did the last inflation figures affect mortgage rates?

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The last CPI data release of inflation of 9.1 percent has the Federal Reserve worried. It wants to keep inflation around the 2 percent mark and clearly this is not being achieved.

When inflation is as high as it is, central banks will rais interest rates. This measure means borrowing money more expensive. With the highest interest rates since the 2008 financial crash, businesses are being incentivised to take less financial risk and save money. If this goes the way the Fed is planning, a recession is very likely.

In terms of mortgages, inflation can be a good thing. It makes the initial price of the house become smaller as an individual dollar becomes worth less. However, changing interest rates seek to balance this discrepancy out.

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How high are mortgage rates currently and how will they change?

The 30-year fixed-rate mortgage averaged 5.78 percent as of 16 June, the highest it’s been since late 2008 and up from just under 3 percent from a year ago.

These rates are high but are set to get higher. The Fed is set to hike the interest rate by a full percentage point by the end of July after increasing them by 0.75 percentage points in June. These rapid and sudden increases are sure to bring the economy to a halt.

As mentioned prior, interest rate hikes makes borrowing more expensive. The next increase will push the 30-year mortgage rate close to 7 percent. By the end of the year, the Mortgage Bankers Association June forecast predicts this will go back down to 5 percent at the end of 2022 and then dropping gradually to 4.4 percent by 2024.

What options do I have to keep my mortgage low?

Fixed-rate mortgages are very expensive at the moment so many buyers are considering adjustable-rate mortgages (ARM), which offer lower initial rates than fixed-rate loans. In contrast to the fixed-rate mortgages, the current average interest rate for ARMs is 4.38 percent.

Over the course of an ARM agreement the interest rate will change much more than the fixed-rate option. However, they can initially begin cheaper so are more enticing for those hopping on to the property ladder.