The Ups and Downs of Mortgage Rates

There are several factors that can influence your mortgage rate.

One primary factor of mortgage rate movement is inflation. Inflation is a growing economy and increasing prices of goods and services. A growing economy means a higher demand for goods and services, allowing producers to increase their prices. This increase in prices therefore results in higher real-estate prices, higher apartment rents, and higher mortgage rates.

In an effort to reduce inflation and slow down economy, the Federal Reserve decreases interest rates, and in the process, lowers mortgage rates. Although mortgage rates have the propensity to move in the same direction as interest rates, their actual movements are also based on the supply and demand for mortgages.

When compared with interest rates, mortgage rates have a slightly different equation in their supply and demand. This variance is the reason that mortgage rates will sometimes move differently than other rates. For example, a lender has an obligation to fulfill, and is forced to close additional mortgages. In order to do so, he or she would have to decrease the mortgage rates, even though interest rates may be on the rise.

Additional Factors Affecting Mortgage Rates

Mortgage rates are influenced by several other factors besides inflation. Mortgage rates tend to increase when the amount of the loan increases. This expansion in mortgage rates is especially true if the loan amount exceeds the established loan limits of Fannie Mae and Freddie Mac. Loan limits typically change at the beginning with each year to conform with the trend mortgage rates have established.

The duration of the loan can also affect mortgage rates. A shorter loan period will usually equate to a lower mortgage rate, and a longer loan can bring about higher rates. You can save thousands of dollars in mortgage payments on a loan with a fifteen or twenty year note. Of course, a shorter loan term will also mean you're your monthly mortgage payment will be higher.

It's possible to avoid these high payments with an adjustable mortgage rate. This plan can allow you to start out with a lower mortgage rate, but your monthly mortgage payment will increase if the current interest rates go up. Fixed mortgage rates are typically higher than adjustable rates, but they provide the opportunity to save money as interest and mortgage rates increase.

A higher down payment can help you to save on your monthly mortgage rate payments. By making a down payment of at least twenty percent, you can get the best possible mortgage rate. If your down payment is smaller you'll have less equity in the property. Less equity means less collateral, so your mortgage rate will be higher.

Discount points are another thing that affects mortgage rates. Lower mortgage rates generally means higher points paid on your loan. The same rule applies for closing costs, which are fees that the lender must pay. Higher closing costs paid to them results in lower mortgage rates. However, if you do not want to pay for all the closing costs upfront, the lender will increase your mortgage rate in order to cover it.

The concept is quite simple. Lenders are generally willing to lower mortgage rates as long as more money is paid upfront. More money down results in lower mortgage rates. And less money down results in higher mortgage rates.

Article Source: http://www.find-investment-advice.com

Author Emanuel Elley loves writing for a variety of popular web sites, on home equity and selling home topics.

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