Why Does the Mortgage Interest Rate Fluctuate?

It can seem like the interest rates on your mortgage are determined by chance or some otherworldly power, but this is simply untrue. Analysts work hard to determine the cost of borrowing, and that information makes the services your mortgage company offers possible.  So what do mortgage companies look at when deciding what to charge for their money?

The 10 Year Treasury Bond Rule

The 10-year treasury bonds are the best indicator of fluctuations in mortgage rates. These investments are direct competitors for the same investment capital. Most mortgages are issued at 30-year amortization schedule but are usually paid off or refinanced every ten years. That means that an investor who places money in a mortgage is likely to see the maximum returns in about same period of time as that 10-year bond.

Investors put their money towards the investments that produce the most positive gain. When treasury bond rates increase, it means that lenders must charge a competitive interest rate to secure enough capital for mortgage loans and services.

The Money Supply

The amount of money in the economy has a direct impact on the cost of borrowing. When there is a lot of money and it is easy for banks to get, it makes it more difficult to earn profits from lending. They must lower the rates they charge for all loans. The lower rates encourage a higher volume of borrowing to make up the difference in profits. This is why governments often attempt to influence an economy with changes in monetary policy.

Market Conditions

Mortgages are a financial product. Like all other products and services, they are impacted by the laws of supply and demand.  A lender wants to work with stable borrowers and offers the rates that are competitive but profitable. When houses are in higher demand than supply, a higher mortgage rate is common. The opposite is true when there is surplus of housing.

Getting the best mortgage rate available helps you to afford a better home, but the timing is critical. Talk with your broker about your options.

Profitable Compromises

Not everyone is able to afford their dream home starting out. You may have to be to cut back now so that you can have what you really want later on. The services of a good mortgage broker are there to help you decide what your most profitable compromises are.

Smaller Space for a Lower Payment

The square footage of your home is the single biggest factor in determining how much you will pay. This impacts more than just the purchase price. It also affects how much you will have to spend on maintenance and taxes. A smaller piece of property is often still a good investment. It locks in the value of your money even if it isn’t everything you wanted. Property appraisal services can help you asses the risk of investing your money into a home you want to sell in a few years.

Moving to an Affordable Area

Young couples that do not have children are more likely to insist on living close to major urban centers. For those with families, the need for space is important. If you are willing to add to your daily commute, you can often find a single family home with three bedrooms and two bathrooms farther away in the surrounding rural communities.

Fewer Amenities

There is a difference between the things absolutely need and the things that you just might like to have. A two car garage is nice, but can you get by with just one? Some homeowners make due with a car port and a shed. Is the balcony really necessary? Is now the time to take on the responsibility of maintaining a pool? Cut back on the frills and just focus on what is essential for the time being.

Flexible Lending Services

Your first home is a big step already. To get you into a mortgage you can afford, keep your goals realistic, and be willing to compromise when necessary. Different loan options also help you pay for your first home. Your mortgage broker will be able to tell you about the variety of services available for borrowers in your situation.