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21 November 2014

The Truth about Mortgage Rates

Have you always wondered why mortgage rates are changing so frequently and why you’re encouraged to lock in a rate as soon as you can? Have you wondered why they can’t just stay the same for a few weeks or a few months to make your life easier? We want to explain to you why […]

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Have you always wondered why mortgage rates are changing so frequently and why you’re encouraged to lock in a rate as soon as you can? Have you wondered why they can’t just stay the same for a few weeks or a few months to make your life easier? We want to explain to you why they are always fluctuating, so you can have a better understanding of one of the most important components to buying a home.

Similar to stock prices, they change based on supply and demand, and the rates are affected by inflation rates, as well as the secondary mortgage market. Wait, did I say secondary mortgage? Just to throw a wrench in the already complicated world of mortgage rates, the secondary mortgage market is where loans and servicing rights are sold by market leaders Fannie Mae and Freddie Mac; and also purchased by investors such as mutual fund companies, banks, hedge funds, and teacher and municipal pension funds. I hope I didn’t lose you there!

Interest rates are impacted also by the economy; because the economy naturally grows and shrinks based on events within and outside the economy, when the economy is on a growth path, the demand for money increases and interest rates are pushed upward. When the economy slows or stops, the interest rates are lowered.

Although the Federal Reserve is unable to directly set interest rates, the agency can influence rates indirectly by increasing or decreasing the supply of money in the economy. By increasing the money supply, the Federal Reserve puts downward pressure on interest rates. Decreasing the money supply puts upward pressure on interest rates. Consequently, if the Federal Reserve decreases interest rates, mortgage rates come down and borrowing for a home purchase is cheaper and encourages home buying.

With so many factors causing the mortgage rates to change quickly, what does this mean for you as a future homebuyer or current homeowner?  Work with a reputable mortgage loan officer who will diligently monitor interest rates for their clients and advise them of opportunities to manage their mortgage debt at a better rate. We at Drop Mortgage will offer recommendations as to the best time to lock in a rate during the home buying process.

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