Home Mortgage Rate
Mortgage rates are always changing. This change in
mortgage rates is affected by several factors. One major factor that affects
the dynamics of mortgage rates is inflation. Inflation means a growing economy
and increasing prices of goods and services. A growing economy means a stronger
demand for goods and services, allowing producers to increase their prices.
This therefore results in higher real-estate prices, higher apartment rents,
and higher mortgage rates.
When mortgage rates are high, then naturally
demands for mortgages and loans slow down. To avoid this kind of effect, the
Federal Reserve usually lowers down interest rates. This action will cause
inflation to reduce, the economy to slow down, and mortgage rates to fall.
Therefore, basically, the dynamics of mortgage rates is directly affected by
the rise and fall of interest rates.
But despite the tendency of mortgage rates to
follow the direction interest rates are taking, there are also several other
factors that affect mortgage rates. Mortgage rates base their movement on the
supply and demand for mortgages and loans. And because the supply and demand
ratio of mortgage rates slightly deviates from that of other rates, mortgage
rates tend to move differently when occasions arise.
For instance, a
lender has a certain quota in the amount of mortgages he can close in one
month. In an effort to reach that quota, he would have to lower down the
mortgage rates of his products in order to attract more buyers. Even though the
market suggests that mortgage rates should be high, lowering down his mortgage
rates will help him achieve his goal. This is another way of affecting the
movement of mortgage rates.
How Mortgage Rates are affected by other key
factors
Mortgage rates are not only affected by inflation, the
overall status of the economy, and mortgage companies. Mortgage rates are also
directly affected by the amount of the money borrowed. If the amount of the
loan increases, mortgage rates rise as well.
Certain standards in the
amount of loan money given were established to keep mortgage rates in control.
The two commonest standards used in the United States stock market are Fannie
Mae and Freddie Mac. Every year, the limits of loan amount is either extended
or reduced, depending on how mortgage rates are predicted to move. When the
loan money exceeds the limits set by either Fannie Mae or Freddie Mac earlier
that year, then the mortgage rate will increase.
Mortgage rates differ
with the type of loan a buyer chooses. A fixed rate mortgage usually has higher
a mortgage rate when compared to the mortgage rate of an adjustable rate
mortgage. The adjustable rate mortgage generally has a very low mortgage rate
on its first year but after that, the mortgage rates would depend on the
changes on the mortgage company’s prime rate.
Discount points are
another way to move mortgage rates. Lower mortgage rates usually means higher
points paid on your loan. The same goes for closing costs, which are fees that
the lender must pay. Higher closing costs paid to them means lower mortgage
rates. However, if you do not wish to pay for all the closing costs upfront,
the lender will raise your mortgage rate in order to cover it.
The
concept is pretty simple. Lenders are usually willing to lower mortgage rates
as long as more money is paid upfront. More money down means lower mortgage
rates. And lesser money down means higher mortgage rates.
Mortgage
rates are also affected by the duration of the loan. 30-year mortgages usually
have lower mortgage rates compared to 15-year mortgages. Lower mortgage rates
allows buyers to save on their monthly payments, thus letting them channel
those extra funds to other good investments. On the other hand, higher mortgage
rates in 15-year mortgages allow buyers to pay off their loan much quicker.
This is because a portion of their monthly payments on mortgage rates are used
to pay off the principal loan amount.
Before shopping for a new home, it is a good idea
to find out what you can realistically afford.
What will your refinancing costs be?
How can you
reduce mortgage insurance costs?
How much will your mortgage payments
be?
A
Mortgage Calculator helps you figure out how much house you can buy based on current
mortgage terms and your personal financial situation.
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