Why do mortgage rates change?
To understand why mortgage rates change we must first ask the more general question: why do interest rates change? It is important to realize that there is not one interest rate, but many interest rates! • Prime rate: The rate offered to a bank’s best customers. • Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate). • Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years. • Treasury Bonds: Long debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations. • Federal Funds Rate: Rates banks charge each other for overnight loans. • Federal Discount Rate: Rate New York Fed charges to mem
Mortgage rates tend to move in the same direction as Federal Reserve rates; both are influenced by the dynamics of supply and demand. However, the supply/demand equation for mortgage rates may be different from the supply/demand equation for Federal Reserve rates. Example: A bank may have borrowed 100 million dollars to fund mortgage loans allowing them to offer lower rates even in the face of rising interest rates. In an expanding economy the demand for credit (loans) increases, driving up interest rates with more buyers, sellers can command higher rates. Conversely, as the economy slows, the demand for credit lessens and interest rates will likewise fall. Inflation is also a major factor driving interest rates. Inflation results from the prices of goods and services increasing in times when the economy, thus demand, is strong. A growing economy will spark a rise in inflation at which time the Federal Reserve will step in and increase interest rates, slowing the economy and reducing i
Have you ever called a mortgage company and received a quote and then called back the next day and the same rate was no longer available? Mortgage companies and borrowers are subject to potential daily and even hourly shifts in the market. Interest rates fluctuate on the simple principal of supply and demand. If there is high demand for credit, in this case loans, then rates typically rise. When you stop and think about it, this makes sense. If there are more people looking for credit, the sellers of that credit can demand a higher price. Of course, the opposite is also true. When there is less demand for credit, sellers are forced to be more competitive and buyers can get a better deal. So when the economy is growing, companies are looking to grow with it and they are seeking credit to expand their businesses. Thus, there is more competition and rates tend to rise. Other the other hand, when the market slides south, there is less demand for credit and rates tend to fall. There are oth
As the central bank of the United States, the Federal Reserve monitors domestic economic growth and the rate of inflation. A council within the Federal Reserve Bank called the Federal Open Market Committee (FOMC) periodically reviews the state of the economy and determines the position of interest rates accordingly. If the FOMC believes that the economy is growing too fast, thus generating inflation, it may decide to raise interest rates. On the other hand, if it thinks the economy is moving into a recession, it may choose to stimulate economic growth by lowering interest rates. The changes in interest rates may influence whether you choose a mortgage with a fixed or adjustable rate. Have a look at today’s interest rates and check out our menu of loan programs. Or give us a call and discuss your options with a Key Home Financing representative. back to top What information do I need to apply for a loan? Getting a loan can seem like a difficult task. In order to make your loan process q
