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Understanding the Factors That Affect Mortgage RatesWhat factors affect mortgage rates? Sometimes it can be difficult to tell. Whether you're in the market for a home purchase or refinance loan, you must pay close attention to the rates offered by various lenders in your area. But if you want to leverage your finances most effectively and take advantage of the lowest mortgage rates available, you need to have some idea of the overall health of the mortgage marketplace. This requires that you understand where mortgage rates have been, where they are at present, and where they will be in the near future. You simply can't make an informed decision otherwise. But it can be very difficult to determine what economic and social factors will cause loan interest rates to trend up or down. It's not uncommon for rates to shift several times each day, and when this occurs, the data and the numbers often aren't widely available until days later. By then, you may have missed an opportunity to lock in a low fixed rate mortgage or other solid loan option. Unfortunately, even the industry experts can't predict with one hundred percent accuracy where mortgage rates will go from one day to the next. The global marketplace is simply too volatile. But there are many factors that affect these rates, and if you know where to look, you may be able to see a major mortgage rate fluctuation coming before it occurs. Inflation or deflation. These two economic events greatly affect mortgage rates across the board. Inflation is the more common of the two events. When inflation increases, mortgage rates must increase along with it. This is because inflation eats away at the value of investments, and mortgage holders consider liens to be investments of a sort. When the economy inflates, mortgage rates rise. Investor needs. As mentioned above, a mortgage is a type of investment for an investor or investment firm. If the marketplace is providing many other more valuable opportunities for investors to leverage their money, mortgage rates may have to increase to attract additional investors. In many cases, though, mortgages offer higher returns than other stocks and bonds with comparative security. The role of government. The housing market has long been familiar with the large government-sponsored entities Fannie Mae and Freddie Mac, two massive firms that currently own much the nation's mortgage debt. These entities back the loans that they purchase, which gives investors a kind of government guarantee that the money will eventually be repaid. This has made investors more willing to lend money, which has kept mortgage interest rates low. A major change in the role of Fannie or Freddie could cause a sudden fluctuation in mortgage rates. It's not easy to keep track of mortgage rate trends and predict where they're headed. But if you want to make an informed decision, you'll have to try. Contact a lender to learn more about how to identify the best mortgage rates. |
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