Today’s Hot Topic: Mortgage Interest Rates
Mortgage interest rates are without a doubt a hot topic right now. We’ve seen rates rise dramatically this year, that’s no secret; but it is important to remember they’re returning back to normalcy from historic lows. Yes, we said it… These rates – though they carry a lot of sticker shock – are somewhat normal. Current rates are still below the 50 year average and much, much lower than the highs reached in the early 80s.
In light of the headlines, you may be wondering what exactly determines the interest rate you as a consumer receive. There are many factors that have an impact on interest rates… In the paragraphs below we’ll break down how the federal reserve, worldwide events, the stock market, employment patterns, credit scores, down payment amount and total loan amounts affect the interest rate you receive:
The Federal Reserve
While the Federal Reserve does not set mortgage interest rates, it does determine the federal funds rate. If the federal funds rate increases, this leads to a higher cost for banks when borrowing from other banks which generally leads to increased consumer interest rates across the board. In short, the Federal Reserve has an indirect effect on mortgage rates. When expectations are that inflation will fall so do interest rates and vice-versa.
When big, sometimes unfortunate, events happen across the globe investors seek out stability. They will avoid risky stocks and look to move their money to more secure options. US bonds are recognized as some of the safest investments, therefore foreign investors keep bond prices high in which interest rates are kept low. Mortgage rates also tend to fall if natural disasters occur.
The Stock Market
While mortgage interest rates and the stock market do not have a direct correlation, rates tend to mimic the stock market. If stocks go up, mortgage rates may generally do too. In general, what’s bad for the economy is good for mortgage rates.
Like we described regarding the stock market, rates tend to mimic employment patterns and what hurts the economy helps interest rates. In this case, if the job report is overall positive rates will go up; if the job report is weak mortgage interest rates tend to fall.
If you have been actively working toward establishing a healthy credit score, your efforts may pay off. Individuals who have a higher credit score are generally able to secure better interest rates.
Down Payment and Loan Amounts
If you have substantial savings prepared as a down payment, you may be able to secure a lower interest rate. When you put more down, you are proving to be less of a risk to the lending organization. When the loan amount is less, so is their risk. However, in some cases we are able to offer specific programs such as FHA that may allow you to secure a great rate with a very low down payment. Don’t count yourself out of the market if you don’t have a large down payment saved up.
As you can see, there are many factors big and small that determine an interest rate. So yes, mortgage rates are trending upward; an interest rate is a big deal and purchasing a home isn’t something to be taken lightly… However, that doesn’t necessarily mean you should wait to finance, refinance or access cash from equity. Regardless of today’s rates, people still have home financing needs; if that’s you, let’s talk about rates and loan programs that might help you move forward today. In many cases, we are able to help. In all cases, we’re able to have an honest discussion about the available options for a particular scenario. Remember: at the end of the day if your lender can’t get your loan closed the interest rate they offer doesn’t make a difference. You need a lender you can rely on! Count on our team at Cambria Mortgage. We’re local and ready to help. Call us today at 952-942-0110 or visit www.CambriaMortgage.com/Connect to get started!