Why do mortgage rates change?
To
understand why mortgage rates change we must first ask the more general
question: Why
do interest rates change?
Interest-rate
movements are based on the simple concept of supply and demand.
If the demand for credit (loans) increases, so do interest rates. When
there are more borrowers,
lenders
can command a higher rate. If the
demand for credit decreases,
so do interest rates. When the economy is expanding there is a higher
demand for credit so rates move higher, whereas when the economy is
slowing the demand for credit decreases and so do interest rates.
This
leads to a fundamental concept: Bad news (a slowing economy) is good news
for interest rates (lower rates). Good
news (a growing economy) is bad news for interest rates (higher rates).
A major factor driving interest rates is inflation. Higher
inflation is associated with a growing economy. When the economy grows too
strongly the Federal Reserve increases interest rates to slow the economy
down and reduce inflation. Inflation results from prices of goods and
services increasing. When the economy is strong there is more demand for
goods and services, so the producers of those goods and services can
increase prices. A strong economy
therefore results in higher real-estate prices, higher rents on apartments
and higher mortgage rates.
Mortgage
rates tend to move in the same direction as interest rates.
However, mortgage rates are also based on supply and demand for
mortgages. The supply/demand
equation for mortgage rates may be different from the supply/demand
equation for interest rates.
This sometimes results
in mortgage rates moving differently from interest
rates. For example, one lender may
be forced to close additional mortgages to meet a commitment they have
made. This results in them offering
lower rates even though in interest rates may have moved up.
Landmark Mortgage
specializes in assisting individuals with obtaining home loans,
whether
for purchase or refinance.
We can advise
you
on the best approach and help you with your specific loan requirements.
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