Mortgage Rates And Factors
Article by James Calvin
There are several factors that affect your mortgage rate. One major factor of mortgage rate movement 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.
In an effort to reduce inflation and slow down economy, the Federal Reserve lowers down interest rates, and in the process, decrease mortgage rates. Although mortgage rates have the tendency to move in the same direction as interest rates, their actual movements are also based on the supply and demand for mortgages.
Mortgage rates have a slightly different equation in their supply and demand as compared to interest rates. This is the reason why sometimes, mortgage rates move differently from other rates. For instance, a lender has a commitment to make and is forced to close additional mortgages. To achieve this, they would have to lower down the mortgage rates even with interest rates going up.
Other Factors Affecting Mortgage Rates
Mortgage rates are affected by several other factors besides inflation. Mortgage rates rise up when the amount of the loan increases. This increase in mortgage rates is especially true if the loan amount exceeds the established loan limits of Fannie Mae and Freddie Mac. Loan limits typically changes at the beginning with each year to conform with the trend mortgage rates are taking.
The length of the loan may also affect mortgage rates. Shorter loans usually means lower mortgage rates and longer loans can cost you higher mortgage rates. Loans with a 20-year or 15-year note can allow you to save thousands of dollars on mortgage rate payments. However, this also means that your mortgage rate payments every month will also be a lot higher.
To avoid this, an adjustable mortgage rate may help you get started on a lower mortgage rate, but if interest rates grow, your monthly mortgage payments will rise also. Fixed mortgage rates are usually higher than adjustable mortgage rates but they can save you money too, especially if the interest and mortgage rates go up.
Larger down payments can help you save up on your monthly mortgage rate payments. You can get the best possible mortgage rate with a down payment that is greater than 20%. Higher mortgage rates are expected if the down payment is less than 5% since the beginning equity is smaller and provides less collateral.
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.
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