Cost of Living

What’s Inflation Have To Do With Mortgage Rates?

All day, every day, conforming and FHA mortgage rates in Indiana are in flux.  Rates move in response to hundreds of factors which exact varying levels of influence.

Among the biggest influences on mortgage rates is inflation.  When inflation is unexpectedly high, mortgage rates tend to rise quickly. Conversely, when inflation is unexpectedly low, rates tend to fall quickly.

But what is inflation?

By definition, inflation is when a currency loses its value; when what used to cost $1.00 now costs $1.10.

As consumers, we recognize inflation by the items we buy on a daily basis becoming more expensive.  However, it’s not that goods are more expensive — it’s that the dollars we’re using to buy them have become worth less.

With respect to mortgage rates, this is a big deal because mortgage rates are directly related to the price of a special type of bond called a mortgage-backed bond.

On Wall Street, mortgage-backed bonds are priced, bought, and sold in U.S. dollars so as inflation renders those dollars less valuable, so it does to mortgage-backed bonds as well. It’s a chain reaction by which mortgage bonds lose value, leading investors sell them, causing bond prices to fall on the excess supply.

And, because mortgage rates move opposite of bond prices, as inflation takes hold, mortgage rates rise.

Lately, inflation has been exceptionally low. The Federal Reserve acknowledged as much in its last statement to the markets, and available data backs that position.  This, after predictions that inflation would be “runaway” in 2010.

The Cost of Living is up just modestly this year and it’s helping mortgage rates stay low. And, so long as it lasts, the cost of owning a home in Northwest Indiana will remain relatively inexpensive.

Cost of Living

Inflations Impact on the Rise or Fall of Home Loan Rates

Homes are more affordable across Northwest Indiana as the housing market emerges from a slow winter season with mortgage rates still near 5 percent.

Soft housing and low rates are an excellent combination for home buyers but whereas home values rise with a gradual pace, mortgage rates change in an instant.  It’s something worth watching.

Each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Mortgage rate volatility can change your household budget.

If you’re trying to gauge whether rates will be rising or falling, one keyword for which to listen is “inflation”. Mortgage rates are highly responsive to inflation.

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices. 

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low in Chesterton, Crown Point, Highland, Munster, Portage, Saint John, Schererville and Valparaiso. Combined with the expiring tax credit, the timing to buy a home may be as good as it gets.

Contact James K Barath in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Cost of Living

Moving to a New City? Check the Local Cost of Living First

It’s not only the real estate markets that differ from town to town – the Cost of Living does, too.

Insurance costs, tax bills and just plain, day-to-day living will dent a household budget differently depending on where that household is. It can be a nerve-wracking fact for families moving across state borders.

As an aid for the budget-aware, Bankrate.com keeps a Cost of Living Comparison Calculator on its website. The calculator asks 3 questions: (1) Where do you live now, (2) To where you are moving, and (3) What is your salary. It then spits out a detailed, 58-item cost comparison list between the two cities.

Some of the key costs compared include:

• Everyday groceries
• Energy bills
• Routine healthcare
• Home ownership
• Clothes
• Sporting goods

The Cost of Living Comparison Calculator is thorough, with data culled from the ACCRA. You’ll be surprised at how granular the list can get. On the ACCRA website, you can buy a similar report for $5.

On the Bankrate.com site, the data is free.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Cost of Living

Adjusting For Cost Of Living Differences After A Non-Local Move

Moving to a new metropolitan area requires adjustments. There’s new streets to learn, new weather patterns to get used to, and new social cultures to assimilate.

There’s also new costs.

Just like home values vary by area, so does the Cost of Living. To visit a doctor in Chicago, as an example, costs a person more than to visit a similar-type doctor in Des Moines.

Cost of Living adjustments can’t be ignored between two cities because it changes a household’s budget.

And while it’s a challenge to know exactly how far your dollar can stretch in a new town, Bankrate.com hosts a helpful Cost of Living Comparison Calculator to make the math a little easier. With categories such as dry cleaning, groceries and beauty salon, the calculator goes extra deep into the typical costs to a household, and can help families to make more realistic budgets.

The calculator also shows the equivalent household income between any two metropolitan areas.