How Your Credit Behaviour Affects Your Mortgage Rates

There are six major factors that affect mortgage rates:

1. Inflation
2. The Rate Of Economic Growth
3. Federal Reserve Monetary Policy
4. The Bond Market
5. Housing Markets
6. You – The Borrower

When inflation hits, the cost of goods and services goes up. The buying power of money goes down. For lenders to maintain a profit they raise interest rates.

With economic growth comes greater consumer spending. The resulting upswing in demand for mortgages can result in a decrease in the money supply because lenders have a limited amount of money to lend which increases interest rates.

At the same time, The Federal Reserve can adjust the money supply upward or downward. Generally, increases in the money supply put downward pressure on rates while tightening the money supply pushes rates upward. The “Fed” can also raise the Prime Lending rate to its member banks, who in turn raise rates to borrowers. This increases the cost of money, slows borrowing and decreases the money supply raising rates.

Mortgage lenders often peg their interest rates on the 10-year treasury bond. Therefore, if interest rates on the 10-year note goes down, mortgage rates will also go down.
When Housing starts to go down or fewer homes are offered for resale, the decline in home purchasing leads to a decline in the demand for mortgages and pushes interest rates downward.

Most importantly there is one factor that has a drastic influence on your interest rate – YOU! A borrower’s credit has a major effect on the interest rate they receive. So, watch our videos on credit and do your best to keep your scores high and debt to income low.