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Why Are Mortgage Interest Rates So Unstable?

By Eric Goodwill

When purchasing a home, getting an affordable mortgage is an incredibly important aspect of overall home affordability.  While interest rates have been low over the past few years, they have been quite unstable.  There are various reason why mortgage interest rates have been unstable over the past few years.

Economy

The first reason why mortgage interest rates have been so unstable over the past few years has been because of the economy.  Over the past few years, the overall economy and stock market have increased wildly in volatility.  While mortgage rates are not directly tied to volatility in the economy, they do tend to follow similar trends.  As the economy stabilizes or improves, mortgage interest rates should begin to stabilize and follow a more consistent and predictable pattern.

Government Intervention

The second reason why mortgage interest rates have been so unstable over the past few years has been because of government intervention in the mortgage industry.  Over the past few years, the government has consistently invested money in banks and other mortgage lenders so the lenders could keep rates from increasing too high.  Since the government is expected to discontinue their investment in coming months, the mortgage rates should be expected to increase over the next year.

Demand for Mortgages

Demand for mortgages is the third reason why mortgage interest rates have been so unstable.  Mortgage rates are most directly impacted by supply and demand for mortgages.  In early 2010, as millions of people tried to take advantage of the home purchase tax credit, mortgage rates increased to reflect the demand.  As the credit came to a close, far less people needed a mortgage and mortgage rates began to decrease.

Related posts:

1. What Causes Mortgage Interest Rates To Go Up And Down So Dramatically?
2. Will Mortgage Rates Drop Again?
3. Current Mortgage Interest Rates- How Did We Got Here?
4. Why are mortgage rates rising now?
5. How Will Low Mortgage Rates Affect The Housing Demand?