The Impact of Inflation on Mortgage Interest Rates
As a homeowner or someone looking to purchase a home, you may be wondering how inflation impacts mortgage interest rates. It's important to understand the correlation between these factors in order to make informed decisions about your finances.
First, let's define what inflation is. Inflation is a measure of the overall increase in prices of goods and services over a certain period of time. This can be tracked through the Consumer Price Index (CPI) economic report. When inflation is on the rise, it means that the purchasing power of your money is decreasing, as you need more of it to buy the same goods or services.
Now, how does this relate to mortgage interest rates? Well, mortgage interest rates are typically tied to the 10 year treasury yield. When inflation is on the rise, the 10 year treasury yield also tends to rise, which means that mortgage interest rates will also rise. This is because investors are looking for a higher return on their investments to compensate for the decreased purchasing power of their money due to inflation.
On the other hand, when inflation is on the decline, the 10 year treasury yield and mortgage interest rates may also decline. This is because investors are not seeking as high of a return on their investments, as their purchasing power is not decreasing as much.
It's important to keep an eye on inflation and the 10 year treasury yield when considering a mortgage. Higher interest rates can mean higher monthly payments, so it's good to try and lock in a rate when they are low. However, it's also important to consider the potential for rising rates in the future and plan accordingly.
TL;DR: Inflation and mortgage interest rates are correlated, with rising inflation often leading to higher interest rates. It's important to monitor both factors when considering a mortgage to make the best financial decision.