Citigroup has agreed to buy Principal Financial Group’s residential mortgage division for $1.26 billion.

Des Moines-based Principal Residential Mortgage has $6.9 billion in assets. Citigroup plans to transfer all Principal Residential Mortgage staffers into the combined firm.

The acquisition will boost Citigroup’s mortgage unit by 50%. It’s expected that rising interest rates will slow down refinancing volume, making the servicing of existing loans more lucrative. Under the agreement, Citigroup will acquire Principal Residential Mortgage stock. J. Barry Griswell, chairman and CEO of Principal Financial Group, said in a statement that the move will allow the company to "go forward from an improved capital position, with better financial flexibility and greater stability of earnings."