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What Affects Mortgage Rates?

By Ann White

Mortgage rates are affected by various factors with supply and demand being the most influential. As the demand for mortgage loans increases, interest rates begin to increase as well.

Supply and demand

When there are more buyers looking for a mortgage loan, sellers are able to command higher rates and a better price. If the demand begins to decrease, so do interest rates. When this takes place, there are more sellers and then buyers start to command the lower rates and better prices. A strong economy is good for borrowers and lower interest rates. A weak economy, on the other hand, is bad for borrowers and rates.

Other factors that affect mortgage rates

~10-year Treasury bond. As the yield increases, mortgage rates increase and as the yield decrease, rates decrease.
~Inflation. During a time of inflation, the value of money decreases. If there is a fear of inflation, interest rates begin to rise, but when there is little risk for inflation, rates will typically fall.
~The Federal Reserve. The Federal Reserve has an indirect influence on mortgage rates and comes from the Federal Funds Rate, discount rate and other actions that are taken by the Fed.
~Credit score. This is the most important factor that a lender considers when offering a mortgage to a borrower. A good credit score will result in a lower interest rate while a lower credit score results in a higher interest rate.
~Type of property purchased. Often times an interest rate will be lower on a mortgage that is used as a primary residence. Homeowners usually do not default on a loan of a primary residence.
~Down payment toward mortgage loan. If a larger down payment is made, a lower interest rate will be given. A lower down payment will result in a higher rate.

Related posts:

1. Inflation Affects Mortgage Interest Rates In What Ways?
2. How Does Inflation Affect Mortgage Interest Rates?
3. Why Are Mortgage Rates Affected By The Economy?
4. Who Affects Mortgage Interest Rates?
5. Why Do Mortgage Interest Rates Fall During A Recession?