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What Causes Mortgage Interest Rates To Go Up And Down So Dramatically?

By Eric Goodwill

Over the past few years, the mortgage industry has gone through more turmoil than ever before. Because of this, interest rates have fluctuated greatly from one day to the next. There are several reasons why mortgage rates go up and down so dramatically.

Supply and Demand

The first factor that causes mortgage interest rates to go up and down so dramatically is supply and demand. Mortgage rates are directly affected by supply and demand. Because of this, when a lot of people are looking to buy homes for any reason, mortgage rates will increase. When the economy is poor and nobody wants to purchase a home, mortgage interest rates will decrease.

Federal Interest Rates
The second factor that causes mortgage interest rates to go up and down so dramatically are federal interest rates. While they are not directly affected, mortgage rates tend to follow increases and decreases of federal rates. Because of this, when the economy improves and the government raises rates to slow inflation, mortgage rates will eventually increase. When the federal government lowers interest rates during times of poor economic conditions, the average mortgage interest rate will decrease as well.

Government Intervention

The third factor that causes mortgage interest rates to go up and down so dramatically is federal intervention in the mortgage industry. Over the past few years, the federal government has invested billions of dollars in mortgage companies, including mortgage giants Freddie Mac and Fannie Mae. By doing this, the mortgage companies are able to keep rates low. If the federal government was to pull their investment out of all banks and mortgage companies, the mortgage companies may be forced to increase their rates.

Related posts:

1. What Causes Home Mortgage Interest Rates To Fluctuate?
2. Will Mortgage Rates Drop Again?
3. What Moves Mortgage Rates?
4. Will Mortgage Rates Work In Our Favor Once The Economy Steadies?
5. Current Mortgage Interest Rates- How Did We Got Here?