When the economy starts to show signs of weakness and inflation is on the rise, people immediately start to worry about their bigger bills such as their mortgage. The economy began rebounding from the 2008 Great Recession around 2012 when home prices started going back up. Along with a rise in home prices, interest rates have also gone up in response to loan activity around the country. A rise in inflation means the dollar is worth less, and that gets people wondering how high mortgage bills could go in the future.
If we are just talking about home prices and interest rates, then you can curb your fear by getting a fixed-rate mortgage. In any economy, a variable-rate mortgage could see its interest rise to as much as 18 percent or more. A rise like that in your interest rate could cause your mortgage to go up by hundreds of dollars per month. But with a fixed-rate mortgage, your interest and mortgage principle payments remain the same for the term of your mortgage.
When interest rates start going up, that usually means that there is a lot of home buying going on. The home mortgage interest rates are not necessarily tied to the prime rate, but it can be expected that home mortgage rates will go up if the prime rate is increased. Does this mean that home prices will go up?
If it is a seller's market (a lot of people are buying), then you can expect home prices to go up. If sellers can get more for their homes because more people want to buy those homes, then the prices will go up. So if you see interest rates on the rise, then you might also notice that home prices are going up as well.
A mortgage is either variable or fixed-rate. As we discussed earlier, a fixed-rate mortgage is a good thing because the monthly interest and principle payments never change. The only things that change in a fixed-rate mortgage are taxes and insurance. If you have a fixed-rate mortgage, then you can expect your home mortgage bills to stay about the same each year.
Most variable-rate mortgages start off at very low interest rates and seem like great deals. But you need to read your mortgage to see what you could be in for over the long haul. Your variable-rate mortgage agreement will let you know how often your interest rate could change, and it will also indicate the highest rate that can be charged. You should expect, over time, that your interest rate will rise and that it will reach that maximum level at some point.
When mortgage prices and interest rates go up, it is difficult to tell what will happen to mortgage bills. Overall, higher prices and higher interest rates mean higher mortgage bills. But how much your bill goes up will depend completely on what type of mortgage you get. Homeowners with a variable-rate mortgage will usually wind up paying much more per month than homeowners with a fixed-rate agreement.