Several things can have an effect on your mortgage rate. One of the main factors is inflation. This happens whenever you have a growing economy and the price of goods and services is increasing. Having a growing economy will mean the demand for these good and services grows stronger, enabling the producers to raise their prices. The results are higher mortgage rates, apartment rents, and real estate prices.
In order to lower inflation and slow the economy down, our federal reserve will lower the interest rates. This decreases our mortgage rates. While usually the mortgage rates follow the direction of the interest rates, they have actual movements that are based on supply and demand in regard to mortgages.
Mortgage rates carry a little different equation for supply and demand when compared to the interest rates. That’s why many times the mortgage rates will move in different directions from other types of rates. An example would when lenders have commitments to make and are forced to close down additional mortgages. To accomplish this they also would need to lower the mortgage rates at the same time the interest rates were rising.
More Rate Factors – Mortgage rates are also affected by other various factors aside from inflation. The mortgage rates rise whenever your loan amount increases. This holds especially true if your loan should exceed established loan limits set by Fannie Mae/Freddie Mac. These loan limits usually change at the start of every year in order to conform to the trend that mortgage rates have taken.
Loan length can affect your mortgage rates as well. The shorter loans typically carry lower rates while the longer loans may cost you higher rates. The loans for 20 of 15 years enable you to save literally thousands just on mortgage rate payments alone, but this also translates into higher monthly payments.
If you want to avoid this you should move to an adjustable mortgage rate. This way you can start out with a lower rate. Then if the interest rates rise, your monthly payments are going to as well. The fixed rates may be a little higher starting off, but they don’t follow the rates when they fluctuate.
A larger down-payment can save you money too. A high down-payment that exceeds the normal 20% will get you your best mortgage. Whenever your down payment is under 5% your rates will be higher because your beginning equity is providing less collateral.
Discount points can affect mortgage rates too. Lower mortgage rates will usually translate into higher points being paid on the loan. This holds true for closing costs as well. These are the fees your lender has to pay. Having higher closing costs being paid to them will mean lower mortgage rates, but if you don’t relish paying for all your closing costs up-front, your lender can raise your mortgage rate to cover it.
The concept here is fairly simple. Lenders most often are willing to come down on the mortgage rates as long as there is more money paid up-front. Putting more money down adds up to lower mortgage rates, and less money down brings your higher rates.