The Factors That Determine Home Loan Rates
Anyone who is in the market to buy a home in the near future is most likely paying close attention to mortgage rates and trends. In recent years we had gotten used to historically low rates making money cheap only to have them increase dramatically and now taper off a bit. But what exactly makes the rates fluctuate? While the answer can be slightly complicated, here is some information on some of the most influential factors.
Inflation and Federal Reserve
While the Federal Reserve (Fed) does not determine the rates directly, they do in fact move the Federal Funds Rate as a response to economic factors. These include things like inflation, employment rates, the economy, etc. When this occurs, the mortgage rates often follow suit. Business Insider explains “The Federal Reserve slows inflation by raising the federal funds rate, which can indirectly impact mortgages. High inflation and investor expectations of more Fed rate hikes can push mortgage rates up. If investors believe the Fed may cut rates and inflation is decelerating, mortgage rates will typically trend down.”
Over the past few years the Fed raised the Federal Fund Rate to combat inflation and as that happened home loan rates spiked as well. The good news is that experts agree that the forecast for both inflation and interest rates is that they both should be more optimal as this year progresses.
The 10-Year Treasury
The other factor that plays a role is that of the 10-Year Treasury Yield. Mortgage companies will also look at this and base their rates off of it. If the yield goes up, mortgage rates will often then too. According to Investopedia “One frequently used government bond benchmark to which mortgage lenders often peg their interest rates is the 10-year Treasury bond yield.”
The trend has mostly been that the 10-Year Treasury Yield and the 30-year fixed home loan rate have been pretty consistent except for recently. The good news is that this should mean that there is some room for improvement on mortgage rates where they should come down some. These factors all play a role in why most experts and economists project that we should see favorable rates coming this year.