How High Can Mortgage Interest Rates Go?

By Kevin Landis

Mortgage interest rates have no theoretical limit, but the rates you can actually expect are much lower and vary by region.

Theoretically, a mortgage interest rate has no upper limit. In a situation with a high-risk loan in a country with hyperinflating currency, a mortgage could hypothetically have an interest rate of 200%. Realistically, a mortgage in a country with a stable currency and an efficient financial market will have interest rates that are determined by the core interest rate of a central bank and the financial criteria of individual lenders for borrowers across different degrees of creditworthiness.

Central Banks

Central banks set the base interest rate for mortgages by setting the basic value of currency. For example, in the United States, the Federal Reserve sets a core interest rate as the rate it charges banks to borrow from it. Banks then lend this money at a higher interest rate to make profits. An increase in the Federal Reserve’s rates causes mortgage interest rates to rise, and a decrease would cause mortgage interest rates to fall. At the beginning of 2010, interest rates are very close to zero, meaning that banks charge only the interest necessary to cover their operational cost plus the risk of the individual lender.

Creditworthy Borrowers

The chief concern for the individual mortgage consumer is their creditworthiness. While today, a bank in the United States can offer a mortgage with an interest rate as low as 5%, most borrowers lack the credit to borrow at such a rate. A borrower with very bad credit can expect a mortgage interest rate up to 8% or 10% depending on whether they have cash for a down payment. To follow the interest rates you can expect in your area based on your creditworthiness, you can visit websites like BankRate to see what current mortgage interest rates you can expect.

Related posts:

1. How Are Commercial Interest Rates Determined?
2. Who Affects Mortgage Interest Rates?
3. Are Home Mortgage Rates Low For People With Good Credit?
4. Do Mortgage Interest Rates Move In Proportion To The Fed Rate?
5. Why Do Mortgage Interest Rates Go Up and Down So Dramatically?