How Interest Rates Affect the Housing Markets 

Mortgage rates are under attack. The uncertainty due to the war in Ukraine, rising inflation, and the Federal Reserve’s monetary policies currently affect the housing markets. For example, the more inflation rises, the more the Fed reacts by aggressively going after the monetary policy and increasing interest rates. The increase in monetary policies inevitably leads to higher mortgage rates. And while rising interest rates might seem a little too much, the Fed primarily wants to keep those current and predicted price rises under control. Higher interest rates mean less money circulating in the economy and thus make borrowing more expensive. For the average American, this could mean higher mortgage costs. The past decade has seen an extraordinary period of cheap mortgages, but since the pandemic hit, there were signs that the period of ultra-low mortgage rates was coming to an end.

Adjustable-Rate Mortgages 

Adjustable-rate mortgages(ARM) are home loans with a variable interest rate. The initial interest rate in the ARM is fixed for a period of time. After that period is over, the interest rate on the outstanding balance is reset periodically, yearly or even monthly, depending on the mortgage terms. 

On the other hand, a fixed-rate mortgage charges a set interest rate that remains unchanged throughout the entirety of the loan. The fact that the total payment remains the same is beneficial for homeowners and makes budgeting easy. The main benefit of having a fixed-rate loan is that the borrower is protected from sudden increases in monthly mortgage repayments if interest rates rise. However, when the interest rates are high for fixed-rate mortgages, qualifying for a loan becomes more difficult because the payments are less affordable.