The Driving Force Behind Mortgage Rates - Infographic
- May 17, 2018
- Taylir Paynter
- Mortgage News
The rise of mortgage rates can be determined from several factors and can fluctuate on a day to day basis. Have you ever wondered what the reasoning is for those rates fluctuating higher and lower?
The Driving Force Behind Mortgage Rates
Mortgage rates can fluctuate from day-to-day
Wonder what’s driving those rates higher or lower?
Let’s take a look.
Inflation is the rate at which prices for goods and services rise.
Higher inflation usually means higher mortgage rates, while lower inflation usually means lower mortgage rates.
State of the Economy
Mortgage rates can fluctuate based on economic activity.
General Rule of Thumb:
Bad Economic News = Lower Interest Rates
Good Economic News = Higher Interest Rates
Keep in Mind – when the economy doesn’t look good, investors typically sell stocks and turn to bonds, which means rates take a downturn.
Traditionally – the 10-Year Treasury is the best indicator whether mortgage rates will rise or fall.
If it goes up, expect mortgage rates to rise.
If it goes down, expect mortgage rates to follow suit.
Supply vs Demand
In any industry – when there’s a high demand – it usually drives prices higher.
When lenders are busy, rates tend to go higher.
When business slows down, rates typically go lower.
You Take Control
It’s not just the market that influences your rate. Your personal finances and loan needs play a part, too.
Your Credit Score
The biggest factor determining your interest rate is your credit score.
Work to raise your credit score and you could get a lower interest rate.
When you have a lower credit score, you usually get a higher mortgage rate.
A larger down payment typically means a lower interest rate and vice versa.
Lenders believe it’s less risky to loan you money when you have more invested in the property.
Interest Rate Type
Fixed vs. Adjustable
You get a lower initial interest rate with an adjustable rate mortgage (ARM) than you would if you have a fixed rate loan, but an ARM may increase over time.
Loan Type and Amount
Rates can vary according to the type of loan.
Generally – a shorter term loan has a lower interest rate than a loan with a longer term.
Also, a jumbo loan typically has a higher interest rate. Lenders consider it a greater risk to loan you larger sums of money. Therefore, the interest rate is usually higher.
The type of property you purchase affects your interest rate.
Primary homes typically qualify for the lowest rates, whereas other properties have a higher rate because they create a greater risk to the lender.
- Second home
- Investment property
- Multi-unit property
Now that you understand what drives interest rates – you’re ready to take the next step toward homeownership!