MORTGAGE RATE FLUCTUATION WHY?
Five main things that cause mortgage rates to deviate.
Mortgage rates are influenced by many factors, but here are five of the most important ones:
1. The Federal Reserve. The Fed sets the federal funds rate, which affects the cost of borrowing for banks and other lenders. When the Fed lowers the rate, borrowing is cheaper and stimulates the economy. When the Fed raises the rate, borrowing is more expensive and slows down the economy. Mortgage rates tend to follow the Fed's moves, but not always in the same direction or magnitude.
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2. The bond market. Mortgage rates are also tied to the yields on long-term government bonds, such as the 10-year Treasury note. When bond yields rise, mortgage rates tend to rise as well, because lenders demand higher returns to lend money for longer periods. When bond yields fall, mortgage rates tend to fall as well, because lenders are willing to accept lower returns to lend money for longer periods.
3. The economy. The state of the economy affects the demand and supply of credit, which in turn affects mortgage rates. When the economy is strong and growing, more people want to buy homes and borrow money, which pushes up mortgage rates. When the economy is weak and shrinking, fewer people want to buy homes and borrow money, which pulls down mortgage rates.
4. The housing market. The condition of the housing market also affects mortgage rates, because it reflects the balance between buyers and sellers. When there are more buyers than sellers, home prices tend to rise and mortgage rates tend to rise as well, because lenders anticipate higher returns from lending money for more expensive homes. When there are more sellers than buyers, home prices and mortgage rates tend to fall as well, because lenders anticipate lower returns from lending money for less expensive homes.
5. The credit score. The credit score of the borrower is another factor that influences mortgage rates because it reflects the risk of defaulting on the loan. Borrowers with higher credit scores are considered more reliable and trustworthy by lenders and therefore qualify for lower mortgage rates. Borrowers with lower credit scores are considered less reliable and trustworthy by lenders and therefore pay higher mortgage rates.
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