If Inflation Is Starting to Pop, It's Time to Act On Mortgage Decisions

By Richard Barrington
LoanPage.com Columnist

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Most of us don't have the luxury of basing our first mortgage on macroeconomic factors. Basically, when we find a house we like and can afford, we act as quickly as possible.

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With a home equity mortgage though, we often have the luxury of choosing our timing more freely. Of course, what comes with the luxury of choosing is the danger of procrastination, and this can mean missing an opportunity to lock in a favorable mortgage rate. Mortgage rates have had a nice run toward lower territory since the middle of last year, but lately there have been reminders that lower rates may not last forever.

If you are considering a home equity mortgage, you'll want to keep an eye on inflation.

Inflation and Mortgage Rates

Inflation is a key driver of mortgage rates. If inflation is trending upward, typically you will see mortgage rates moving in the same direction.

Recently, there have been some ominous signs on the inflation front. The preliminary release for the Producer Price Index (PPI) for March, 2007 was 1.0%--a very high reading, and on the heels of another high reading of 1.3% for February. Enough pressure from producer prices will eventually affect consumer prices, and in turn, mortgage rates.

Act Now If Inflation Is Starting To Pop

Individual inflation readings are notoriously erratic, and year-over-year, the change in PPI is a very reasonable 3.1%. It's a little like popcorn -- if you hear one pop, it doesn't mean much. But once you start hearing one pop after another, you know it's starting to cook.

Anyone considering a home equity mortgage should be vigilant for any further signs of inflation, and if you suspect the popcorn is starting to pop, act quickly. Once inflation starts to cook, it is only a matter of time before mortgage rates heat up as well.

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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