Mortgage interest rates have a remarkable effect on the overall long-term cost of buying a property through financing. Mortgage borrowers are looking for the highest possible rates while lenders have to manage their risk by charging interest rates. Borrowers with good credit histories and stable finances are those who can access a mortgage with lower interest rates. The financial status of borrowers has a significant impact on the interest they can get; government fiscal policy and other economic factors can affect mortgage rates on a global level. Below are some of the factors that can affect your mortgage interest rates:
Inflation
Inflation causes the price to rise gradually. It is a critical factor in the overall economy and an essential element for mortgage lenders. It reduces the purchasing power of dollars. And, mortgage lenders manage the interest rates such that it will be able to withstand the reduction of purchasing power through inflation to make sure that there is a real net profit on their interest returns.
The Level of Economic Growth
The gross domestic product and the employment rates are the economic growth indicators that have a remarkable effect on mortgage rates. When economic growth rates increase, there is higher income, and there is an increase in the level of consumer's spending which translates to a rise in consumers seeking mortgage loans.
Federal Reserve Monetary Policy
The monetary policy of the Federal Reserve Bank is one of the essential factors that affect mortgage interest rates and the overall economy. The Federal Reserve Bank does not stipulate a specific price in the mortgage market, but the establishment of the federal funds' rates and the adjustment of money supply upward or downward have a pronounced effect on the mortgage interest rates that are available to borrowers.
Generally, a rise in the supply of money pressures rates downward while a reduction in money supply puts upward pressure on rates.
Housing Market Condition
The conditions and trends in the housing markets can influence mortgage rates. When there is a decrease in the number of new constructions, there is will a reduction in home purchases which automatically leads to a decline in demand for mortgages. This situation makes the interest rates to reduce. Another trend that affects the mortgage rate is the number of consumers renting an apartment instead of buying a home.
The rise and decline of mortgage interest rates operate based on the basic rules of demand and supply. All the factors mentioned above have a pronounced influence on mortgage rates. Most importantly, your financial standing affects your mortgage rate. It is essential to speak to a financial advisor before deciding on starting a home purchase and mortgage process.