Understanding Mortgage Interest Rates – What Drives Them and What You Should Watch if You’ll be in the Market


Mortgage rates have been on a roller coaster for the last few years. From some of the lowest rates in history to the steepest jump in such a short time, it has not been boring to follow. Deciphering where rates are going has it challenges, but hopefully this article will help explain some variables that determine rates, what to watch for, and other things to consider. Whether you are a first-time buyer with a fresh CJO or looking to upgrade to a new property because of an upgrade, airline or domicile change, understanding what drives mortgage interest rates can potentially save you thousands of dollars over the life of your loan. By keeping an eye on certain indicators, you can make more informed decisions when it comes to securing the best rate for your mortgage. Here are some indicators that should help you decipher trends.

– The Federal Reserve and Monetary Policy: The Federal Reserve plays a crucial role in influencing mortgage rates. When the Fed raises or lowers interest rates, it directly impacts the cost of borrowing for banks and lenders. Mortgage rates tend to follow the direction of the Fed’s monetary policy. If the Fed raises interest rates to combat inflation or stimulate economic growth, mortgage rates are likely to increase. Conversely, if the Fed lowers rates to encourage borrowing and investment, mortgage rates may fall. The Fed’s meeting calendars are helpful to have an idea when potential policy changes will occur.

– Economic Indicators: Keep an eye on key economic indicators such as GDP growth, unemployment rates, and inflation. A strong economy typically leads to higher mortgage rates as lenders demand higher returns to compensate for the increased risk of inflation. An example of that happened in early February driving one of the steepest day-to-day rate jumps in recent history. Conversely, a weak economy may result in lower mortgage rates as lenders lower their rates to attract borrowers.

– Consumer Price Index (CPI): The CPI measures changes in the cost of living and is a key indicator of inflation. High inflation erodes the purchasing power of money over time, leading to higher interest rates. One recent example was mid-February’s CPI news that was not ideal for mortgage rates. When inflation is on the rise, lenders may increase mortgage rates to maintain their purchasing power. Monitoring CPI reports can provide insight into future trends in mortgage rates.

– Bond Market: Mortgage rates are closely tied to the bond market, particularly the yield on the 10-year Treasury note. Investors often view bonds as a safer investment compared to stocks during times of economic uncertainty, leading to increased demand for bonds and lower yields. When bond yields fall, mortgage rates tend to follow suit. Monitoring bond market trends can provide valuable insights into potential movement in mortgage rates.

– Housing Market Conditions: Keep an eye on local housing market conditions. Supply-and-demand dynamics, home price trends, and inventory levels can all influence mortgage rates. A competitive housing market with high demand and limited inventory may result in higher mortgage rates as lenders adjust to market conditions. That was noticed especially over the last couple of years.

A Viewpoint to Consider: It is believed that rates will be lowering over the next year or two. Lower rates lead to conventional refinance and VA streamline refinance opportunities in the future. If you are in the market now and worried about not being able to capitalize on lower rates later, refinancing to lower your interest rate may be an option if rates do indeed trend lower later this year or next. 

Staying informed about the factors that drive mortgage interest rates can help you make smarter decisions when it comes to buying a home. By monitoring some of the indicators listed above, you can position yourself to potentially secure the best possible rate for your mortgage.

Consulting with a mortgage professional can provide personalized insights and guidance tailored to your unique situation. Trident Home Loans (Equal Housing Lender, NMLS 65716) is an airline industry leader for securing the right mortgage for you. Contact Spencer Wartman (NMLS 2109932) at spencer@mythl.com and let him help you secure your future home! Also, feel free to reach out to Spencer directly if there’s a topic you’d like for him to touch on here.

Trident Home Loans, NMLS ID 65716, Corporate Office located at 6723 Plantation Rd, Pensacola, FL 32504.Any offers or advertisements for mortgage products on our website or other platforms are subject to conditional approval. The actual terms and conditions of a mortgage loan, including interest rates, loan amounts, and eligibility, are dependent upon several factors, including the borrower's creditworthiness. Trident Home Loans reserves the right to modify or revoke any offer, and final approval is contingent upon the completion of a full application, verification of information provided, and meeting all underwriting requirements. For information regarding our licensing, you can visit our website at www.Tridenthomeloans.com.Trident Home Loans is an Equal Housing Lender. Please note that this disclaimer is provided for informational purposes and may be subject to updates or changes in accordance with regulatory requirements. Borrowers are encouraged to contact Trident Home Loans directly for the most up-to-date and accurate information regarding mortgage products and offerings. This advertisement is not an offer to lend, and all applications are subject to credit approval. Terms and conditions may apply.


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