The world of finance is a complex place with several interlocking transactions and entities. A small change in one financial instrument can send ripples that will affect several financial rates. A mortgage is no exception. To understand mortgage rates, we must look at the groups that are involved and how they interact.
On either end of the spectrum we find the consumer and the investor. The consumer who is shopping for a mortgage loan will be looking for the cheapest rate he can find. Investors will shop for the best possible return on investment as they search for shares of Mortgage Backed Securities (MBS).
Lenders and aggregators fall in the middle. The lender will normally sell the mortgage to a third-party financial institution (aggregator). That institution will take a bundle of mortgages, create a MBS with them and sell shares of that MBS to investors to turn a profit off of.
The middlemen have a very delicate job. They need to balance attractive rates for the potential home buyer while still keeping them attractive enough to entice investors to buy into an MBS. There are numerous other ways the money could be invested. Thus, what the investor is willing to pay is a large factor in determining mortgage rates.
Other economic conditions contribute directly and indirectly to the current mortgage rate. Rate adjustments by the Federal Reserve and inflation are two significant examples. Growing inflation can have a direct effect at the lender level because the dollar will get weaker. The lender will bump their mortgage rates up to accommodate this loss of purchasing power.
A rate adjustment by the Federal Reserve has an effect on finance across the board. Lowering the federal funds rate encourages interbank lending so money moves fluidly. A lower rate also encourages inflation. Raising the rate has the opposite effect. Banks will hold on to their money a bit tighter, discouraging inflation in the process.
Investors are affected by changes in investment instruments, aggregators need to compete with those changes, and lenders need to keep balance in their own sphere of influence.
These are but a couple of circumstances that impact mortgage rates.
Securing A Great Rate
The best way to compete for a great mortgage loan is to build or repair your credit score. A better score is going to provide greater flexibility for your choice of lender. A potential home buyer with bad or no credit is going to be better off spending a little time to help establish or repair their rating. Bad credit personal loans or bad credit payment cards are both excellent ways to do this.
A mortgage broker is another great way to find a loan and a rate suitable to your personal situation. These professionals have several avenues already developed to help connect a borrower and lender.
Justin often writes articles informing homeowners of how mortgage works. For any information on online court records, he recommends going to courthousedirect.com.