How does rising inflation typically impact mortgage rates?

Rising inflation typically leads to an increase in mortgage rates because lenders need to compensate for the loss of purchasing power over time. When inflation rises, the general cost of goods and services increases, which can erode the value of money received in the future. To mitigate this risk, lenders often raise interest rates, including mortgage rates, so that the return on the money lent remains attractive.

Inflation influences the expectations of future economic conditions, prompting lenders to adjust their rates in anticipation of further inflationary pressures. As inflation increases, the central bank may also respond by raising benchmark interest rates to try to control inflation, which directly affects mortgage rates as they often move in tandem.

In this context, other options are less accurate. For instance, the notion that rising inflation reduces mortgage rates contradicts the fundamental principles of lending: lenders increase rates to protect their financial interests during inflationary periods. The idea that it has no effect overlooks the clear connection between inflation and interest rates, while the argument that it only affects adjustable-rate mortgages narrows the overall impact that inflation has on the mortgage market. Rising inflation influences the rates of fixed and adjustable loans alike.