What Really Affects Mortgage Interest Rates?
By Chris Cope
2010Many of you have questions about what really affects Mortgage Interest Rates. I don’t have a crystal ball that can answer your questions but what I do have is information about some of the underlying fundamental indicators that determine the general direction of mortgage interest rates.
Many people are surprised to learn that what the Fed does with the prime rate has less of an effect on Mortgage interest rates. Contrary to popular belief, the prime rate sets the tone for rates on business borrowings and consumer accounts. More often than not, Mortgage rates have anticipated what the Fed will do and have already factored in a corresponding move, be it up or down. Only if the market is wrong in their estimate will rates change with a Fed move.
So what would affect mortgage rates?
The most important factors are the general news on the economy, and not just the US economy but the global economy. Let’s talk more about the impact of economic news on rates. Traditionally when the news is good Mortgage rates should go up and conversely when the news is bad rates go down. The last few several weeks have been very interesting in terms of Mortgage rates as we still have historic lows but are getting good economic news, for the most part, on the US economy. What is happening here? One word, Europe, more specifically Greece. The debt problems in Greece and some other European countries are overriding any good economic news here in the US. The Shirmeyer report had this to say about the situation:
“US markets are completely focused on developments in Europe now; generally underplaying the US economic data.”
Right now, rates overall are still at historical lows and the jury is still out on how long they will stay that way. You can follow the economic indicators to get a general direction, but the bottom line is that you should decide what works for you and your situation. Take the time to determine what payment you are comfortable in making each month on your Mortgage.