How Are Mortgage Rates Determined ?
One of the main objectives of getting a mortgage is to ensure that you get the best possible rate of interest. This means that you should be looking to get a mortgage that offers the lowest possible interest rate that is fixed.
Usually potential home buyers depend on the lending institution o the broker to get the interest rate. However, this may not be the right move if you are looking for an affordable mortgage. Nonetheless, you should make it a point to educate yourself so that you know how mortgage rates are determined by the lender. Even a small change in the interest rate can have an impact on how much you will be paying on a monthly basis for the mortgage.
While there are different factors that influence the interest rate, usually keeping a close watch on the 10-year Treasury bonds will give you an idea whether the mortgage rate will increase or decrease. The reason for this is simple. The most popular mortgages are the 30-year mortgages. However, most borrowers pay off or refinance the mortgage within a period of 10 years. Therefore, the 10-year Treasury bond is taken as the best gauge to see whether interest rates will be changing. In fact, this type of bond is also used to gauge other bonds.
So, if the bond rate, which is also known as bond yield, increases, then you can be certain that the mortgage rate will go up as the interest rate will increase. The reverse is true if the bond yield decreases.
Besides this mortgage rates can also increase or decrease based on the economic activity in the nation. This is mainly because when a borrower loses his job or is not able to make the monthly payments, it will affect the lender. Therefore, anything that affects the borrower, affects the mortgage rate. So, things like job reports, Consumer Confidence, Consume Price Index or GDP will have an effect on the interest rate and therefore, the mortgage rate.
So, when it comes to determining mortgage rates, all these factors are taken into consideration.
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