How Inflation Affects Mortgage Rates and Home Prices

Home for sale. Sign in front of new home

Inflation presents its own set of difficulties that can be difficult to deal with. The thought of our hard-earned dollars rapidly losing their value is one that strikes feelings of worry into our core. Currently, we are experiencing a 40-year high of 8.5% inflation and people are panicking. Despite this, not all of the effects of inflation are negative and silver linings can be found. Owning a home is a valuable asset that can be used as leverage in a financial situation and can be especially valuable during times of unprecedented inflation. We have compiled an overview of exactly how inflation affects mortgage rates and home prices and how you can safely navigate your finances and assets through it.  

Inflation and Fixed-Rate Mortgages

Having a mortgage during inflation is a double edge sword. If your mortgage does not have a fixed rate and instead you have an Adjustable-Rate Mortgage, the interest is subject to rise with inflation. On the other hand, taking out a 30-year fixed mortgage during relatively low average mortgage rates can help protect from inflation for three reasons. First, when you take on a low fixed mortgage rate it will not be subject to the inevitable rise in interest rates, which the Federal Reserve has already implemented as a countermeasure to the nation’s inflation. Next is having the large tangible asset that is a home. Owning a home is a great investment that will likely only grow in value over time, usually at a rate that counters inflation. Lastly is protection from rent hikes. Not only do renters have to deal with a significant rise in the cost of living, but their rents are also subject to a rise in rates while those on a fixed mortgage don’t have to worry about their rates increasing. Those with fixed-rate mortgages with a low rate are the best protected from how inflation affects mortgage rates.


Inflation can actually be beneficial for homeowners who have already borrowed money towards their house. Due to the decline of the dollar’s value, the money that they originally borrowed will be worth less in the future, thus lowering the overall cost of the debt owed. Having the asset of a home is a much better defense than cash savings, which will depreciate as inflation increases. As inflation increases, mortgage lenders will increase their rates but as of now, that has yet to happen. The current trend of low mortgage rates paired with the rapid rise of inflation makes taking out a fixed mortgage one of the best hedges to protect your finances against inflation. Low mortgage rates are not around to stay and are already beginning to rise

Home Prices

While inflation has just recently begun affecting mortgage rates, the cost of houses has been skyrocketing for some time. The cost of materials was drastically impacted by the supply chain crisis caused by the pandemic and now with the increase of inflation, that cost is only going to continue to rise. This means that homes being built are using materials that are more expensive and in turn, will raise the final price. If you already own your home, it will in turn increase its value. Residential properties have risen in value at an average of 12.7% and estimated home price is expected to go up 16% year-over-year in 2022 meaning that waiting to buy will end up costing much more. This jump in cost lowers the buying power of many individuals looking to enter a new residence but in turn, raises the value for those looking to sell. 

Making a large financial decision in a time of inflation can promote hesitancy and uncertainty. Understanding how inflation affects mortgage rates and home prices is only one piece of the puzzle. Fortunately, hiring a professional mortgage broker can ease the stress of buying or selling a home. They will provide you with a clear understanding of how to best approach the dilemma of inflation as well as explore mortgage options that can help protect against financial losses.

Here at Federal Hill Mortgage, it is our mission to ensure that our clients receive the best possible mortgage plan available to them. Contact us today and find out why Federal Hill Mortgage is ranked as Maryland’s number one mortgage broker and lender.

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The Federal Hill Mortgage Team is here to supply you with all the information you need to shop for a mortgage that's right for you.