Most home buyers have a general idea about mortgage rates – they go up, and down with market fluctuations. But why do they really change so often and sometimes drastically?
The mortgage rate that decides the size of their EMI and ultimately how much they end up paying for the purchase of a house. Mortgage rates are different for different types of loans. These rates keep fluctuating from one week to another. This happens because lenders make decisions based on the mortgage rate after looking at economic indicators.
Lenders are in this business for safe and secure returns. They are all the time looking to maximize their returns on mortgages they provide for the purpose of buying homes. However, they need to keep in mind economic factors related to their lending activity. Here are some of the important factors that have an impact on mortgage rates.
Condition of economy
When the economy of the nation is doing well, mortgage rates usually go up. This is because money is in strong demand for various economic activities and lenders must divert funds for these activities. On the other hand, lenders decrease mortgage rates when economy slows down as they want to make money affordable in a bid to revive economy. Lenders also look at the situation of the real estate market as well as consumer price index before setting the mortgage rate.
Policies of the federal government
Mortgage rates are impacted heavily by the policies of the federal government. Lenders must follow the guidelines of the government to keep in control the amount of money circulating in the market. Lenders are also often asked by the government to keep inflation growth in check. Lenders can inject more cash in the market by raising the mortgage rates and by buying treasury bonds.
Impact of global events
Mortgage rates are also impacted by important global events such as sharp increase or decrease in international fuel prices or changes of regimes in important countries. If there is a trade war going on between the United States and any other country, investor confidence is jolted, and its result is seen in fluctuating mortgage rates.
Stock market condition
Demand for treasury bonds decreases when the stock market is doing well. Investors are more interested in stocks and they show less interest in bonds. As a result, prices of bonds go down and their yield increases. In such a scenario, banks increase mortgage rates for home buyers.
It’s important during a fluctuating rate situation to lock in your rates quickly. Contact one of our mortgage rate professionals to get started.