People everywhere are always asking themselves, “What is causing a fluctuation in rates?” and the answer to this question is somewhat complex. What you must understand when dipping your fingers in the financial pot is that currency rates are constantly changing. If we knew when it would happen, wouldn’t we be doing something to change it? Inflation is inevitable, from political and economic factors to the many variables that influence rate fluctuations.
Since it is hard to predict precisely when inflation or deflation will occur, you would benefit from getting one step ahead of the game. How, you ask? When you gain a broader understanding of rate fluctuation, this knowledge could aid you in getting financing.
A Brief Definition of Inflation
Before you can properly understand why rate fluctuations occur and what they mean for your borrowing ability, you ought to understand what inflation actually is. To put it simply, inflation is when the average cost of services and/or goods rise. The weighted average of a typical household’s total expenditure is usually the type of data used to determine inflation, which could be impacted by anything, such as a fluctuation in oil prices.
The Influencing Factors of Fluctuating Rates
Economic stability is dependent on numerous variables. Exactly which variable is going to cause the most damage depends on the time and situation. When the economy improves or gets worse, it will have a direct effect on consumer spending and financing lending. Here are some of the main influencing factors of fluctuating rates:
1. Interest Rates
2. Government Debt
4. Political Stability
Since there is such a strong correlation between inflation and the above variables, there is no wonder why homebuyers are seeking out financing options as a safeguard from rate fluctuation.
How does increasing inflation affect mortgage?
If you are a fan of fixed rates and do not want to have to worry about how much you will be forking out each month due to inflation, remortgaging is the best option. Rate fluctuation may leave you feeling uneasy about how much you are actually spending to live in and run your home; your pride and enjoy. With that being said, keep in mind that increasing inflation can impact the overall price you repay for the biggest and most important investment of your life.
Fixed or Floating Rate – Which option is less risky for rate inflation?
Choosing between the two is quite simple, if you have taken the above information into account. Anyhow, let’s go over the two general financing options:
Fixed Rate – Generally, a lender will provide the borrower with a loan that is tied to a fixed rate of x amount of years. Extensions are possible and the benefit of this option is that whoever goes down the fixed route will have the peace of mind that rates will not fluctuate.
Floating Rate - Of course, there are benefits associated with the two. For example, this option allows the borrower to lend for a longer period of time. However, interest rates will rise after a certain period of time therefore the floating rate option does not completely exclude rate fluctuation.
Whether you intend on taking out a loan to help with mortgage payments or to assist you financially for business purposes, the more well-versed you are on the subject, the easier it will be to navigate your way through the financial maze.