Mortgage Interest Rates
For most people, the biggest purchase they will ever make is their
home. In fact though, their mortgage and the mortgage interest rates
it connotes are a larger purchase than their home. In single loan
term, the amount you pay to cover the mortgage interest rate cost
is more often than not more than what you paid for your house. Reducing
even a fraction of your mortgage interest rates can save you a great
deal of money on your mortgage.
The rise and fall of mortgage interest rates have become erratic during
the past 20 years. As a rule of thumb, mortgage interest rates go
up when the economy is strong and stock prices rise. On the other
hand, if economy weakens, mortgage interest rates go down.
In today’s market, the mortgage interest rates are much lower than
they were in the mid-1980s to the 90s. But within the next year or
two, financial experts have come up with predictions mostly outlining
the rise of mortgage interest rates.
A sad fact however, is that with mortgage interest rates, there are
no certainties and no guarantees. No one can really tell whether or
not mortgage interest rates will rise over a period of time. The current
mortgage interest rate that you are charged right now is something
that your banker or broker cannot control. Often, loans with unattractive
mortgage interest rates are sold to FannieMae or FreddieMac which
in turn, sell these loans to the secondary market.
Mortgage investors purchase these secondary market loans with mortgage
interest rates that are undesirable to the regular homebuyer. These
investors are actually the ones who set the standards in mortgage
When news of a growing economy erupts, the Fed will raise the mortgage
interest rates in an effort to slow down economic growth and lower
stock prices. As a result, the investors would demand higher mortgage
interest rates from their lenders. To sell their loans, lenders will
increase their mortgage interest rate yields. This drives mortgage
interest rates even higher.
"The universal regard for money is the one hopeful fact in our civilization. Money is the most important thing in the world. It represents health, strength, honor, generosity and beauty. Not the least of its virtues is that it destroys base people as certainly as it fortifies and dignifies noble people.”
- George Bernard Shaw
When the economy goes down on the other hand, the same thing happens
with mortgage interest rates, but in reverse. The Feds will cut down
the mortgage interest rates in order to bring the economy back to
life. Investors will start buying more bonds while the mortgage interest
rates are low. Demand grows and loan sellers offer their products
with lower mortgage interest rates. Thus consumers will be able to
get loans for decreased mortgage interest rates.
Mortgage interest rates are based on a financial instrument called
index. LIBOR (London Interbank Offered Rate) is among the most common
indices that mortgage interest rates are based on. Other mortgage
interest rate indices are 1-Year treasury Security, Prime, 6-Month
CD, and the 11th District Cost of Funds (COFI). These indices for
mortgage interest rates are subject to the financial conditions of
Loans are offered with different mortgage interest rates. Take for
example a traditional 30-year mortgage. This type of loan involves
a fixed mortgage interest rate. The mortgage interest rate of a 30-year
mortgage is higher than that of a 15-year mortgage.
Other alternative programs and payment plans for your loans can some
difference on your mortgage interest rate. An adjustable rate mortgage
initially has lower mortgage interest rates compared to fixed rates.
So basically, the effect of economics on mortgage interest rates is
also counteracted by the type of mortgage you choose to take.
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