Do You Know What Causes Changes In Mortgage Rates?

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Mortgage rates tend to change from time to time. This is due to the supply and demand of the money that is present in the economy. These two factors cause mortgage lenders to change the rates they charge homebuyers. Here are factors that cause changes in mortgage rates:

Growth

It is natural for an economy to grow and shrink, this can be as a result of events happening within the economy or outside the economy as well. When an economy is experiencing growth, then demand for money goes on the rise and when demand for money rises, then the interest rates for borrowing money also rise. The opposite also occurs when the economic growth is on a lower scale.

Inflation

Inflation tends to increase prices and reduces the spending power of an economy. This in return slows down growth since not many people are in a position to spend and profit lenders. Inflation results for mortgage rates going higher since the mortgage, lenders want to offset the risks associated with inflation using profits, hence making buying a home to be quite expensive. The more profits, lenders look forward to making the higher the mortgage rates.

Federal Reserve Board

The economic activity of any country is measured nationally this helps in determining the most appropriate interest rate. In the case of the United States of America, they use the Federal Reserve board to measure economic growth since this is the central banking authority in America. Various Federal Reserve branches collect the required economic information and they report to their headquarters. A meeting is then held after all the information has been handed in, this meeting is normally the determining factor as to whether the Federal Reserve will increase the mortgage rates to control the high rate of growth or will they reduce the mortgage rates so as to trigger growth and encourage homebuyers to borrow.

Money supply
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The Federal Reserve board does not have the power to set the mortgage interest rates directly, but the board has the power to influence mortgage rates indirectly. This can be achieved by their power to reduce or decrease the money supply in the economy. When the board increases the money in the economy this result to the rates going down. When the money in the economy is reduced, then the mortgage rates go up. When the Federal board ensures that the mortgage rates are decreased, this makes it affordable to purchase a home and it also encourages borrowing.

Benchmarks

Financial markets have the ability to tell where the mortgage interest rates are headed. Most lenders tend to use financial market to benchmark long term mortgage interest rates. For example, the yield on the ten year Treasury bond is globally considered to help lenders to benchmark mortgage interest rates. Any changes that occur in the ten year Treasury bond yield greatly influence how the mortgage interest rates will be set.

Market availability

No matter how high the demand is, the market availability can result to mortgage rates changing. When there are no houses to sell, then the rates reduce but when there are more houses to sell, the market availability is high, hence resulting in the mortgage rates going up as well.

There are so many factors that can result to mortgage rates changing. However, most mainly revolve around demand and supply of money in an economy.

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