How does inflation impact interest rates?

As inflation increases, home loan rates will rise too. That's because lenders know that a rise in inflation actually diminishes the value of the money they receive over the life of a loan, as the money they receive for payment simply won't go as far.

But What Does This Really Mean to You?
The bottom line is that as inflation increases, home loan rates will rise too. That's because lenders know that a rise in inflation actually diminishes the value of the money they receive over the life of a loan, as the money they receive for payment simply won't go as far.

So when lenders see changes in inflation or even anticipate a rise, they increase their interest rates to make up for the loss in future buying power that will happen as a result of inflation.

What Should You Do?
Work with a home loan professional who pays close attention to what's going on with inflation–not only with the reports that come out, but also with the concerns that legislators and lenders express. After all, lenders may raise rates to protect their money as soon as they feel the tide turning.