The only constant is change, especially when it comes to your mortgage rate.
Changes to borrowing rates are brought on by many factors. One primary factor of mortgage rate fluctuation is inflation. The term "inflation" is used to describe a growing economy and the increase of prices of goods and services. When the economy grows, there is a higher demand for goods and services, and producers can increase their prices. The resulting price increase brings about higher real estate prices, higher rental fees 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 Mortgage Rate Factors
Inflation aside, there are several other factors that can influence mortgage rates. The rates on mortgages will tend to increase as the loan amount increases. This higher fluctuation is especially true if the loan amount exceeds the established loan limits of the potential borrower. Loan limits will typically change at the beginning of each year to conform to current mortgage rate trends that have been established.
Loan duration may also affect the mortgage rate. A loan over a shorter period will usually equate to a lower mortgage rate, while longer loan terms can bring about higher mortgage rates. If you take a loan over a fifteen or twenty year period, you can save thousands of dollars on mortgage rate payments. However, this shorter time period will also mean that your monthly mortgage payments will also be much higher.
To avoid high monthly payments, you can choose an adjustable mortgage rate. With this type of plan you may begin with a lower mortgage rate but, as interest rates grow, your monthly mortgage payments will rise as well. On the other hand, a fixed mortgage rate is typically higher than an adjustable rate, but it can save you money in the long term as interest and mortgage rates increase.
Making a larger down payment is another way to save on your monthly mortgage payment. A down payment of more than twenty percent of the buying price will allow you to access the best possible mortgage rate. Typically, mortgage rates are higher if the down payment is less than five percent because you initially have less property equity and, therefore, less collateral.
Discount points can also affect mortgage rates. A lower mortgage rate generally means higher points paid on your loan. This same rule applies for lender fees such as closing costs. Higher closing costs paid to the lender will result in lower mortgage rates. If you choose not to pay for all the closing costs up front, the lender will increase your mortgage rate to accommodate the additional fees.
The concept of fluctuating mortgage rates is quite simple. Lenders are usually willing to lower their mortgage rates, provided more money is paid up front. When you put more money down, you'll pay lower mortgage rates. Less money down, on the other hand, results in higher mortgage rates.
Changes to borrowing rates are brought on by many factors. One primary factor of mortgage rate fluctuation is inflation. The term "inflation" is used to describe a growing economy and the increase of prices of goods and services. When the economy grows, there is a higher demand for goods and services, and producers can increase their prices. The resulting price increase brings about higher real estate prices, higher rental fees 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 Mortgage Rate Factors
Inflation aside, there are several other factors that can influence mortgage rates. The rates on mortgages will tend to increase as the loan amount increases. This higher fluctuation is especially true if the loan amount exceeds the established loan limits of the potential borrower. Loan limits will typically change at the beginning of each year to conform to current mortgage rate trends that have been established.
Loan duration may also affect the mortgage rate. A loan over a shorter period will usually equate to a lower mortgage rate, while longer loan terms can bring about higher mortgage rates. If you take a loan over a fifteen or twenty year period, you can save thousands of dollars on mortgage rate payments. However, this shorter time period will also mean that your monthly mortgage payments will also be much higher.
To avoid high monthly payments, you can choose an adjustable mortgage rate. With this type of plan you may begin with a lower mortgage rate but, as interest rates grow, your monthly mortgage payments will rise as well. On the other hand, a fixed mortgage rate is typically higher than an adjustable rate, but it can save you money in the long term as interest and mortgage rates increase.
Making a larger down payment is another way to save on your monthly mortgage payment. A down payment of more than twenty percent of the buying price will allow you to access the best possible mortgage rate. Typically, mortgage rates are higher if the down payment is less than five percent because you initially have less property equity and, therefore, less collateral.
Discount points can also affect mortgage rates. A lower mortgage rate generally means higher points paid on your loan. This same rule applies for lender fees such as closing costs. Higher closing costs paid to the lender will result in lower mortgage rates. If you choose not to pay for all the closing costs up front, the lender will increase your mortgage rate to accommodate the additional fees.
The concept of fluctuating mortgage rates is quite simple. Lenders are usually willing to lower their mortgage rates, provided more money is paid up front. When you put more money down, you'll pay lower mortgage rates. Less money down, on the other hand, results in higher mortgage rates.
About the Author:
Emanuel Elley provides material for numerous web magazines, on family matter and home rental subjects.
No comments:
Post a Comment