Changes in mortgage rates are an important factor in our decision to purchase houses or refinance existing mortgages. It makes us wonder, what really causes the mortgage rates to rise or fall? Well, there are several factors which impact mortgage rates.
In general, a growing economy leads to higher mortgage rates while a slowing economy leads to lower mortgage rates. One factor impacting mortgage rates in the United States is the Federal Reserve Board’s macroeconomic policy response to changing macroeconomic conditions.
Federal Reserve’s monetary policy objectives include: (1) Maximum employment, which means all Americans that want to work are gainfully employed, and (2) Stable prices for the goods and services we all purchase.
Another factor that affects mortgage rates is availability of credit. Based on macroeconomic conditions like prevailing unemployment levels, mortgage lenders may project an elevated risk of credit default.
In anticipation of higher rate of credit default, lenders may tighten their underwriting guidelines. They might outright stop offering specific mortgage programs like Jumbo Loans or FHA mortgages, or price themselves out of the market, i.e. setting outrageously high rates for specific products.