What Makes Mortgage Rates Rise and Fall?
When you shop for a mortgage, following the mortgage rates available may seem maddening. The numbers, coming in eighths of percentage points, affect the payments you will make over fifteen or thirty years, so incremental changes can make a big difference. Some of the rates you ultimately pay depend on your credit score, of course, but that comes from scoring that sets a deviation from the standard rate. Those rates sometimes seem to rise or fall for no readily apparent reason. Dive a little deeper, though, and a multitude of factors impact the base interest on your mortgage.
Supply and Demand
One economic factor that might make intuitive sense is the supply of houses and demand for housing in your market. If there are many more houses available than there are people interested in buying, the market naturally moves to a lower rate. Those rates should lure more buyers to enter the market. On the other hand, when buyers are competing for relatively few available houses, mortgage rates are more than likely to rise.
Supply and demand fluctuate constantly, creating a shifting ground for you. If you have the luxury of shopping based on where the market lies, you want to look for slow markets for the best rates. If you need a home more quickly, though, you likely have to hope you need it at a time when many in the market in which you are looking do not.
Overall Economy
The economy in a given market also weighs in heavily. Rates are set differently in times of stability. If jobs are steady or growing, retail sales are up in the area, and investing is rising, you will most likely see mortgage rates rise to react to a market in which more people can afford to buy. In down times, though, you can expect those rates to decline, as an encouragement to potential buyers to dive in.
The economy involves national, state, and local cues. We live in an increasingly mobile society, so broader economic indicators will factor in, even if a particular town or city is doing better or worse than anyone else.
The Federal Reserve
Behind it all, the Federal Reserve System plays an active role in setting where the rates land. The Federal Reserve establishes policies that affect banks' duties. For example, it establishes the money a bank must have in reserve, and what percentage of the money on hand, it can lend out. When the Fed raises the reserve requirements, more money must be raised, and often lower mortgage rates attract more customers, thus building their reserves. When the reserve requirements drop, on the other hand, rates will go up so that there is more profit to be made off of new loans.
Economic influences can greatly affect mortgage rates in your market, and in turn, alter the money you can expect to pay on a mortgage. When you track rates and find the opportunity to buy when rates are lower, you can save yourself a great deal of money on your mortgage.
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