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Mortgage interest rates have a significant impact on your overall long-term cost of purchasing a home.


While your personal financial position affects the exact interest rate you will be offered, economic factors and government monetary policy affect mortgage rates overall.


There are five major factors that affect mortgage rates, and all of them reflect the basic rules of supply and demand.


Federal Reserve Monetary Policy

The actions of the Federal Reserve Bank (The Fed) are closely covered by the media. The fed does not directly set mortgage interests rates. However, it’s actions do have an impact.


Generally, an increase in the money supply puts downward pressure on rates while tightening the money supply applies upward pressure.


The Bond Market

The overall condition of the bond market indirectly affects how much lenders charge for mortgages. The money investors can earn on competing products like government and corporate bonds causes mortgages rates to fluctuate. One frequently used benchmark is the 10-year Treasury bond yield.



Mortgage lenders carefully monitor the rate of inflation and adjust rates accordingly. Generally, lenders must maintain interest rates to overcome the effects of inflation and still return a net profit.


Economic Growth

With economic growth comes higher wages and increased consumer spending. This includes consumers seeking mortgage loans, which tends to increase mortgage rates since lenders only have so much capital to lend. Indicators such as the employment rate and GDP (Gross Domestic Product) influence mortgage rates up and down.


Housing Market

When fewer homes are being built or offered for sale, this leads to a decline in demand for mortgages and pushes rates downward. And when the housing market heats up, creating a greater demand for mortgages, rates tend to move upward.


Although the way these factors interact can get complex, having a basic understanding helps explain to you what could be coming in the future.


We are constantly monitoring the market and the latest trends to provide you with up-to-date answers and advise for your financial situation.

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