Categories
My Blog
Why don't interest rates fall?
What makes mortgage interest rates rise and fall and why are they going up if the government just lowered rates?
You yourself are partly responsible for mortgage rates. Yes you! There are hundreds of investments vehicles to chose from, consumers like you want the lowest interest rates on a 30 year mortgage, but you also want the highest gains and earnings on your 401K, CD's, bonds, savings accounts and stocks. In simple terms it's all about "supply and demand" and where you or your broker invests. Lenders do not have an inexhaustible supply of money to lend, they have to sell the loans they originated to investors to get money to lend to future borrowers. The interest rates have to be high enough to make them attractive on the open market. Long term loans are tied or measured against long term investment products like the 10 and 30 year treasury bills that the government sells and other bonds tied to mortgage back securities. When demand increases for those products, their prices rise, this causes their yields to go down. When the yields go down so do 30 year interest rates. Inflation is the absolute worst word that a borrower can hear in the news. Evidence of inflation will cause rates to move instantly upward. It's because it means that the return on investments already bought and sold are worth less because the value of the dollar is dropping, in order to make future investments payout out higher yields or returns that out pace inflation, rates have to go up. It's a real dance to keep it all in balance.
The Feds role alone does not control 30 year mortgage interest rates! The Fed Fund rate is the interest rate that banks charge each other each night when they have to borrow money to cover the minimum reserve requirements mandated by law. Borrowing money overnight is extremely short term and this is why the Fed Fund rate primarily influences short term loans like equity lines, credit cards and 1, 3 and 5 year ARM's. So why aren’t ARM's cheaper? Again, supply and demand. Wall street investors are not interested right now in buying ARM's, non-conforming loans over $417K , loans tied to risky borrowers, so they have to raise rates to make them more attractive. Can you blame them? This leads to my next topic, why borrowers have to put down more money, have better credit and why right now is the best time to finance a home…………...
Views: 223
Be the First to Comment on this Post!.