What are Mortgage Rates? 

The interest rate on a mortgage is known as the mortgage rate. Mortgage rates are set by the lender and can be fixed or variable, with the latter fluctuating with a benchmark interest rate over the length of the loan. Borrowers' mortgage rates fluctuate depending on their credit history. For homebuyers planning to finance a new house with a mortgage loan, the mortgage rate is a major factor to consider. Mortgage rate averages fluctuate with interest rate cycles and can have a significant impact on the homebuying market. 



Factors Affecting Mortgage Rate

1. Inflation - The steady upward trend of prices due to inflation is an indicator of the entire economy and a key determinant for mortgage lenders. Over time, inflation erodes the purchasing power of currencies. To ensure that their interest returns represent a real net profit, mortgage lenders must generally keep interest rates at a level that is at least sufficient to overcome the erosion of buying power due to inflation.

2. The Rate of Economic Growth - Mortgage rates are influenced by economic growth indicators such as GDP and the unemployment rate. Higher income and consumer expenditure, particularly mortgage loans for home purchases, are associated with economic growth. While this is beneficial for a country's economy, an increase in overall mortgage demand tends to affect mortgage rates to go up. 

3. Federal Reserve Monetary Policy - The action of the Federal Reserve in setting the Fed Funds rate and changing the money supply higher or lower have a substantial impact on the borrowing public's interest rates. In general, expanding the money supply drives rates lower, while limiting the money supply pushes rates higher.

4. Market Trends in Housing - Mortgage rates can also be influenced by housing market trends and conditions. When there are fewer homes being developed or offered for selling, demand for mortgages falls, and interest rates fall.