One of the effects of inflation is that it tends to make mortgage interest rates move higher. As inflation increases, so does the chance that the Fed funds rate will rise. While the Fed funds rate doesn’t have a direct impact on mortgage interest rates, it is a trend that rates can follow.

Higher mortgage interest rates impact how much you pay for your home over the life of the loan. Consider this example from Peter McDougall at TheStreet.com:

Say you want to borrow $200,000. If you had locked in your rate last
week, your monthly mortgage payment would be $1,210.70. At this week’s
rates, however, that payment is now $1,240.55. That amounts to an extra
$358.20 per year, and more than $10,750 in additional interest accrued
over the life of the loan.

That’s a big difference. And the difference gets bigger as mortgage interest rates rise, or as you borrow more for a home.

Another segment is being hit by the increase in mortgage interest rates: Those looking to refinance. Worries over ARMs and resetting interest only loans have some homeowners scrambling to lock in mortgage rates that — though rising — are still relatively low. Unfortunately, these rates are getting higher every day.

And combine them with the fact that dropping home values = negative equity, and things are brewing for another mortgage market crisis as people are unable to get out of their current home loans.