Is Inflation Good for Mortgage Holders?

family of 3 unloading boxes from their car into new home

Inflation—the general increase in the cost of goods and services over time—impacts nearly all consumers. As inflation rates rise, interest rates generally follow and those carrying loans (like a mortgage) are likely to feel the effects. 

Who takes the hit when inflation is high?

Variable-rate mortgage holders 

A variable-rate mortgage is a home loan which has an interest rate that can fluctuate (both up and down) in response to changes in the economy. When inflation is high, so too are interest rates and homeowners with a variable rate loan can expect higher monthly payments.  

On the contrary, a fixed-rate loan does not fluctuate throughout the length of its term, allowing the borrower to accurately predict and budget for all future payments. 

Those looking to buy a home 

People who find themselves house hunting while inflation is high, face not only increased home prices, but elevated interest rates as well. This combination can make securing a loan difficult and pushes many out of the mortgage application pool altogether.  

Those hoping to sell their home 

Because high inflation makes buying a house more challenging, it also makes selling more difficult. Times of high inflation are often marked by homes taking longer to sell and bidding wars occurring with less frequency.  

yellow lightbulb Quility

Pro-Tip!

Homebuyers may be able to offset the effects of inflation on mortgage rates by: 

  • Presenting a high FICO credit score
  • Securing a loan with a shorter term 
  • Making a larger-than-required down payment 
What type of mortgage holder is positively affected by inflation?

Fixed-rate mortgage holders are the winners when it comes to inflation. Consider a 30-year, fixed-rate mortgage: Your first and last payment will be the same amount. If your monthly payment now is $2,000, and $2,000 is worth only $1,700 in the future (due to inflation), then you’ll have essentially lived into a cheaper mortgage. 

Takeaways

Fixed-rate mortgage holders will fare better when inflation is high and will inherit a “cheaper” loan over time. 

A rise in inflation generally initiates a rise in interest rates.

Focus on debt elimination so these (sometimes drastic) increases don’t become a major financial stressor. 

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Brook van der Linde
Contributing Writer and Content Specialist
Brook van der Linde is a contributing writer and content specialist for Quility. She provides lifestyle articles and insurance information via Quility’s online magazine. Her industry and leadership-focused content can be accessed via LinkedIn.