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Mortgage rates can fluctuate from day to day. Wonder what’s driving those rates higher or lower? Let’s take a look!
There are a couple types of influencers that come from the market. First is inflation, which is the rate at which prices for goods and services rise. Higher inflation usually means higher mortgage rates, while lower inflation usually means lower mortgage rates. Mortgage rates can fluctuate based on economic activity.
General rule of thumb: bad economic news equals lower interest rates. Good economic news equals higher interest rates. Traditionally the Ten-Year Treasury is the best indicator whether mortgage rates will rise or fall. If it goes up, expect mortgage rates to rise. If it goes down, expect mortgage rates to follow suit. Lastly, in any industry when there’s a high demand, it usually drives prices higher. When lenders are busy, rates tend to go higher. When business slows down, rates typically go lower.
Now it’s not just the market that influences your rate. Your personal finances and loan needs play a part too. The biggest factor determining your interest rate is your credit score. Work to raise your credit score and you could get a lower interest rate. When you have a lower credit score, you usually get a higher mortgage rate.
Another factor is down payment. A larger down payment typically
means a lower interest rate and vice-versa. Lenders believe it’s less
risky to loan you money when you have more invested in the property.
Rates can vary according to the type of loan or property type. For example, fixed vs. adjustable. You can get a lower interest rate with an adjustable rate mortgage (an ARM) than you would if you had a fixed-rate mortgage, but an ARM may increase over time. Generally, a shorter
term loan has a lower interest rate than a loan with a longer term. The type of property you purchase affects your
interest rate as well. Primary homes typically qualify for the lowest rates, whereas other properties have a higher rate because they create a greater risk to the lender.
Now that you understand what drives interest rates, you’re ready
to take the next step towards homeownership. Give New American Funding a call today and let’s get you started.
New American Funding : Understanding Mortgage Rates