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Mortgage rates can’t seem to sit still. The pandemic required throwing fiscal stimulus into overdrive, and the Federal Reserve has been pulling out all the stops to keep the economy in balance as best as it can. Mortgage interest rates are at record lows, and as a result, home buying has been on fire lately. At the same time, many homeowners are refinancing their homes to take advantage of lower rates while they can.
Of course, this is creating a hot real estate market as prices continue to rise across the country, but the good news on mortgage rates continues to flow. The question is, though, why are rates lower? What is it that affects mortgage rates, and when are mortgage rates at their lowest?
The Federal Reserve, the central bank of the United States, has a lot of control over monetary policy. While the Federal Reserve doesn’t set mortgage rates, the central bank’s decisions can certainly influence mortgage rates in different ways.
The Fed sets interest rates that affect short-term credit lines like credit cards and home equity lines of credit. Mortgages are a long-term credit, and the Fed does not have the latitude to change these. However, because mortgages are often packaged into other securities and sold as bonds, mortgage rates can sometimes be determined by the demand from investors to buy those bonds.
The last 18 months have been tricky for the economy, with pandemic lockdowns and travel restrictions choking growth and hammering the jobs market. Economic news can often have an effect on mortgages in the opposite fashion. Bad economies often mean lower mortgage rates, and good economies that include high consumer confidence and spending, positive GDP growth, and a strong and rising stock market can often move mortgage rates even higher.
Better economies often mean that more buyers are able to afford the homes they want, and this pushes demand for mortgages higher. That demand can create higher work levels for lenders with limited resources, and they need to originate as many loans as possible with the best rates that they can for their brokerages.
Of course, as much as macroeconomic forces might be affecting your mortgage interest rate, your personal finances have the most bearing on what rate you are able to get. Lenders will take a look at your risk of default to determine the risk level they are taking on by lending to you, which they will calculate using a couple of factors. They will often take a look at your debt-to-income, and of course, your credit score. The better the state of your personal finances, the better the position you will have to get or negotiate a lower mortgage rate.
Often hunting for the lowest mortgage rate means waiting for the right economic conditions, building a strong credit report, and shopping around. Ultimately, your mortgage rate needs to work for you so that your payments are manageable and fit within the down payment parameters you can handle.
If interest rates aren’t low enough, it might also be a good idea to wait until you can get a mortgage at a lower rate. Future buyers can continue to rent while saving more money for a larger down payment and buy more houses down the line. With interest rates so low right now, it is no surprise that mortgages are flying off the shelves, and housing stock is being snapped up quickly by eager buyers. No matter where you choose to buy, make sure you have a good mortgage rate from the best mortgage broker or bank you can find first.