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What Impacts Mortgage Interest Rates?

If you’re buying a new home, there’s a good chance you’re going to need a mortgage loan. The interest rate on your home loan can equate to tens of thousands of dollars over the course of your loan. So getting the right interest rate is important.

But what impacts mortgage rates?

There are a number of factors that impact interest rates, which are determined by the U.S. Federal Reserve. The Fed may increase interest rates in order to limit economic growth and inflation. Conversely, the Fed may reduce interest rates to promote economic growth.

Another influential factor is actually rather simple: supply and demand.  Aside from the Federal Reserve, it’s supply and demand that has the most profound impact on mortgage interest rates, with low demand spurring lower interest rates in order to pull in new borrowers, which in turn triggers growth economically.

Bonds also play a major role. The U.S. government issues bonds that impact mortgage rates. This occurs because investors are constantly buying and selling mortgages, which are called “securities”; whomever holds the mortgage benefits through the interest that’s charged to the borrower.

Bonds come into play because there is a limited pool of investors and bonds compete against mortgages (securities). As a result, when there are lots of government-issued bonds available, investors may invest less in securities which means there’s less funding available for home loans. This also impacts the interest rate, which in turn, impacts how many people obtain new loans and refinance existing loans.

On an individual level, your credit score has a tremendous impact on your home loan’s interest rate. The better your credit score and the more trustworthy you are as a borrower, the lower your interest rate will be.  Conversely, if you have a lower credit score then you’re a higher risk to the lender; they charge a higher interest rate in order to offset this risk.

If you’re seeking to buy or sell a home, or if you’re a real estate agent who’s ready to take your career to the next level, turn to Tammy Calhoun at Century 21 Hometown, serving all of Ventura County, California and beyond. Call 805.794.7455 or stop by the contact form.


T. Calhoun

T. Calhoun

With nearly 20 years in the field, Tammy Calhoun is a licensed REALTOR (CA Lic #01350021) and Ventura County area manager for Century 21 Hometown Realty. Her specialties include buying, selling, negotiating, foreclosures and consulting. Tammy Calhoun has won numerous awards and she is regarded as one of the top real estate agents in California.

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