Rising inflation has led to increased mortgage interest rates for borrowers. Inflation is now at its highest point in three years, influencing everything from groceries and gas to mortgage rates. Recently, mortgage rates have climbed rapidly from the high 5% range to approximately 6.62%.
Kevin Watson, home loan specialist and district manager for Churchill Mortgage, notes, “Mortgage rates have risen sharply since signs of inflation spiked.” The question remains, will these rates continue rising, and how might inflation further impact borrowers’ finances? Several experts offer predictions on the mortgage interest rate environment as inflation rises again.
What to Expect from Mortgage Rates as Inflation Rises
Though predicting exact mortgage rates is challenging, experts agree it’s unlikely they will decrease soon. Inflation has steadily risen since February, largely driven by the conflict in Iran, affecting interest rate conditions.
Homeowners and buyers should reasonably expect mortgage rates to remain in the mid-to-upper 6% range for the balance of the year, with potential for rates to move into the 7% range if the Iran conflict is protracted,” says Jeff Taylor, a board member for the Mortgage Bankers Association and founder of Mphasis Digital Risk.
This conflict has resulted in investors selling mortgage bonds, pushing rates higher. Bonds, including mortgage-backed securities and 10-year Treasuries, significantly influence mortgage rates. When bond yields fall, mortgage rates generally decrease, yet rising yields, as happens with bond sell-offs, increase mortgage cost.
Brian Shahwan, vice president and mortgage banker at William Raveis Mortgage, states, “Rising inflation is usually bad news for mortgage rates in the short term. Higher inflation equals higher bond yields, which, in turn, equal higher mortgage rates.” Federal Reserve policy also impacts mortgage rates. While the central bank cut rates last year, no reductions have been announced for 2026. According to the CME Group’s FedWatch tool, a rate cut seems unlikely. Some experts suggest a hike could occur.
The probability of a Fed rate hike by year-end has climbed to 50%,” says Nicole Rueth, senior vice president at CrossCountry Mortgage. “There are no rate cuts currently on the board.”
Consider locking your mortgage interest rate before rates rise.
Impact on Housing Affordability
Higher inflation results in increased mortgage rates, raising monthly payments. Inflation also impacts home prices, particularly for new builds facing higher material and transport costs. Additionally, it can increase home insurance expenses and lower the budgets potential buyers have to work with.
Shahwan notes, “Higher inflation could eat into homebuying budgets. As borrowing costs rise, buyers could qualify for smaller loans or need to stretch budgets further to cover interest, taxes, insurance, and other expenses climbing during inflationary periods.” Additionally, falling wages reduce the buying power of down payments and impact borrowers in lower-income groups.
Inflation is eroding the purchasing power of buyers’ savings, and the down payment they’ve been building feels smaller against a world where everything costs more,” Rueth says. “Real wages have now gone negative, with inflation surpassing wage growth. This squeeze is most felt by first-time buyers and lower-to-middle-income households already stretched entering the market.
Potential End or Ceiling in Sight
Fortunately, experts don’t foresee continuous, steep climbs in rates. The Iranian conflict is a significant driver of current inflation and rates, so resolution should help decrease them.
“In time, the war will end, oil prices will settle, shipping disruptions will fade, and the bond market will regain confidence that inflation will subside. Bond yields and mortgage rates will decline,” Watson says.
Jeff Taylor highlights the role of a new Federal Reserve chairman, Kevin Warsh, stating, “A protracted Iran conflict could cause rates to move into the 7% range, but a new Fed chair closely aligned with White House goals to lower rates may hold rates below 7% with a dovish pause rate stance.”
Managing High Mortgage Rates
Though mortgage rates may remain high this year, homebuyers can still manage payments effectively. Strategies exist to obtain lower interest rates despite current challenges.
“Adjustable-rate mortgage products, relationship pricing, first-time buyer programs, and free rate float-downs are ways buyers can lower monthly payments,” Shahwan advises.
Explore options with multiple mortgage lenders, engage a brokerage, purchase discount points, or participate in a mortgage buydown program, all methods that can minimize the impact of elevated rates and payments.