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MAKING SENSE OF MORTGAGE RATES
A mortgage rate is the interest you pay on your home loan over the life of the loan. Your monthly mortgage payment includes interest, plus a portion of the remaining principal balance. A lower interest rate means lower monthly payments. Even a 1% difference in rates can save you a significant amount of money over the life of the loan.
One thing you must know is that mortgage rates are driven by various factors and can change daily. Some things that may cause this fluctuation:
- State of the Economy
When the economy is strong, rates often go up. When the economy is weak, rates tend to go down. Mortgage lenders also analyze data to forecast economic growth or contraction and set rates accordingly.
- Federal Reserve Activity and Inflation
To keep inflation in check, the Federal Reserve controls the amount of money flowing through the economy by increasing or decreasing interest rates. When necessary, it inserts more cash into the economy through the purchase of Treasury bonds. This promotes economic activity and lowers interest rates.
- World Events
When a crisis or significant event is happening internationally or domestically, there can be economic uncertainty, which impacts investor confidence and can affect interest rates.
- Borrower Profile
Beyond the economic factors above, your mortgage rate also depends on your financial situation. This includes your credit score, loan amount and loan terms, the type of home you’re buying, down payment amount, whether you pay discount points, and more.