If there’s one thing most homeowners or would-be homeowners worry about, it’s the interest rate. When you are buying a home, choosing the right interest rate can be one of the most frustrating things as they constantly fluctuate.
Just why do those rates change? Is there any way to predict what interest rates will do at any given time?
The State of the Economy
If the economy is in a ‘good position,’ meaning people are spending money and buying homes, then interest rates may go up slightly. Lenders are often busy at this time and aren’t starving looking for borrowers. Because the economy is doing well, borrowers are often willing to pay slightly higher interest rates because they can afford it.
If the economy isn’t doing well, interest rates may fall in an effort to encourage borrowers to borrow money. Lower interest rates make it easier for borrowers to qualify for a loan. It also makes it easier for borrowers to afford the loan. With lower interest rates driving in more borrowers, there could be a ripple effect, helping the economy get better with the money flowing back into it.
World or Political Occurrences Play a Role
Sometimes things happen in the world or in politics that make people panic. If people stop spending money, the economy starts to feel the effects of it. Lenders often lower interest rates in order to entice borrowers to take out mortgages again. Putting the money back into the economy by moving houses can help put some confidence back in the minds of consumers.
If something good happens in the world or politics, though, interest rates may increase slightly. It’s not a direct impact, but rather an afterthought as a result of the consumer confidence that the ‘good events’ caused whether they were worldly or political.
The Federal Reserve May Control Interest Rates
Many people believe the Federal Reserve always controls mortgage interest rates. This isn’t the case, though. They only step in when they feel that it is necessary. For example, if the Fed feels that inflation is getting out of hand, they may increase mortgage interest rates in order to slow the spending down in the housing industry. With higher interest rates, fewer people borrow money. This may give inflation a chance to settle.
If the economy is hurting, though, the Fed may step in and lower interest rates. This is in an effort to get things going again. The Fed stimulates the flow of money by buying Treasury Bonds. This puts money in the market and helps to bring interest rates back down.
Unfortunately, you cannot predict what interest rates will do. You can rely on the expertise of your loan officer when it’s time for you to lock, though. An experienced loan officer has seen what interest rates can do and when they do it. The loan officer can then help you see the historical patterns and give his best guess on what might happen next. Ultimately, it’s your decision when you lock an interest rate though. It has to be a rate that you are comfortable with as it could be your interest rate for the next 30 years.