Understanding why mortgage interest rates rise can help you make better decisions when buying or investing in real estate. Here are the main reasons why rates go up:
Economic Growth and Inflation
Economic Growth: When the economy is doing well, people spend more money. This can cause prices to rise (inflation).
Inflation: The Federal Reserve (the Fed) may raise interest rates to keep inflation in check, making mortgages more expensive.
Federal Reserve Policies
The Fed controls the federal funds rate, which influences mortgage rates.
When the Fed raises this rate, borrowing money becomes more expensive, including for mortgages.
Bond Market
Mortgage rates are linked to U.S. Treasury bonds, especially the 10-year Treasury note.
When investors want higher returns on these bonds, mortgage rates usually increase.
Housing Market Conditions
High demand and low supply in the housing market can push mortgage rates up.
In a slower market, lenders might lower rates to attract more buyers.
Global Events
Events like geopolitical tensions or economic instability in other countries can affect U.S. mortgage rates. Investors might seek safe investments, like U.S. Treasury bonds, influencing rates.
Supply and Demand for Loans
When more people want loans but there’s less money available, lenders may raise rates. If there’s a lot of money available, competition among lenders can lower rates.
Lender Risk Assessment
Lenders look at your credit score, income, and debt when setting your rate.
If they see more risk in the market, they might raise rates to protect themselves.
Knowing these factors can help you understand why mortgage rates change and how it might affect your real estate plans. If you have any questions or need more information, feel free to reach out. I’m here to help!
