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Interest Rates and Inflation

Lately, we find ourselves overwhelmed with news about inflation, FED, and mortgage interest rates. What if I am trying to buy or refinance a house or investment property right now. What do I do, and how will all this chatter affect my decision to buy or refinance?

The latest CPI (Consumer Price Index) reading on inflation was 7.5%! Levels not seen in almost 40 years. What is the correlation with mortgage interest rates? I will spare you how the FED works, but long story short, as inflation goes up, interest rates on mortgage loans should go up, and they have in the past few months.

Over the past few months, the mortgage interest rates have increased from mid-high 2’s to mid-high 3’s. Still! Historically low-interest rates. But if you look in REAL terms – with inflation at 7.5% and mortgage interest rates at 3’s… It’s a no-brainer. You are still paying less for borrowing than the rate of inflation. So turn off your depressing news station and pseudo-economists and analysts calling for the doom. We are pretty far away from sounding alarms.

While, as it turned out, inflation is NOT transitory, it is still not forever. So the Fed needs to be decisive in raising interest rates and hurting the market, but get us out of this. But, of course, this all has become political, especially in an election year. So we predict that Fed will get more aggressive, get the situation under control, and interest rates will be coming down again within the next 24 months. They will get higher first, though.

The real estate market is still extremely hot but hopefully will cool off a little bit with rising mortgage rates. Inventory is still extremely low, but we predict more inventory as rates rise. So what can we recommend? Below are some essential tips for you:

Tip #1: Find the BEST possible mortgage broker to work with. Not a Banker at some big bank, but a mortgage broker. Get advice from those that will have time for you and ADVISE you on top of just doing your loan

TIP#2: Consider ARMs (Adjustable Rate Mortgages). Interest rates on ARM products may be significantly lower than for 30 year fixed loan products.

Tip #3: Life is good. Make your financial decisions on what is best for your family in the long run. STOP watching TV and listening to the news — dead serious about this one.

Alex Shekhtman, LBC Mortgage CEO

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