Mortgage rates have a long-term effect in the housing market. It is a determining factor for lenders on how risky a person is when lending money. Lower rates are connected to low-risk borrowers who have good credit history and paying habits. But many may wonder what elements control the mortgage rates?
Inflation – This is defined as a sustained increase in prices for services and goods. As inflation rises, the value of profits erodes away as well. Thus, mortgage lenders increase their mortgage rates to be able to maintain the power of their returns.
Economic Status – High or low levels of economic growth affects mortgage rates. When economic status is stable, more prospect homeowners are more likely go into the housing market. On the other hand, if economic status is slow, potential homeowners will be afraid to get a loan.
These two factors have a large influence on mortgage rates. However, there are also other factors that contribute to the mortgage price. Investors also play a influencing force in the play of mortgages. There are many kinds of investors that influences mortgage rates: mutual funds, banks, foreign government, pension, and government-sponsored companies.
In addition, the federal government also has a large role in inflation expectations. The Federal governments Reserves sets the current interest rates, where the market interprets it to a long-term rates. The change is yielded in the US Treasury bonds.
When you have an overview or good understanding of what affects mortgage rates, you are able to make better financial and investment decisions better. When getting a mortgage or refinance, knowing when to get them is beneficial. Never put full trust in the media, they are not reliable all the time.