How Does a Bank Determine Mortgage Interest Rates?
Mortgage rates are closely tied to the interest rates prevailing at the time of purchase. The most important rate is the federal funds rate, the rate at which banks can borrow money from the federal reserve. This key number influences all other interest rates, so when the federal reserve cuts the key rate, mortgage rates are likely to fall, and vice versa. Mortgage rates are influenced by how risky it is for a bank to lend to a given borrower. This is determined by the borrower’s credit score and her current state of employment. If someone working at a factory wants to buy a house, they will have to bear a higher interest rate than a lawyer that makes more money each year, and hence the bank can count on to pay off the mortgage more than the factory worker. There are many other factors that go into the final rate of a mortgage. The size of the down payment put on the property is one. If you can pay 20 percent or more of the value of the house up front, you will owe less and receive a l
