If you’re just entering the home loan market for the first time and have begun to compare rates to friends or family you’ve spoken to about their own mortgage experience, you might notice a curious fact: The rates you’re looking at are different from the ones others you’ve spoken to are under. If you aren’t familiar with how mortgage interest rates work, you might not understand why this is the case.
At VIP Mortgage Inc., we’re here to get you the best mortgage rates possible for your situation. Interest rates on the market are driven by a number of factors, including personal and financial information, but they also track closely with several universal factors that can cause them to fluctuate significantly. Let’s go over a few of the causes of changing interest rates, and what they might mean for you.
Interest rates are tied in certain fuzzy ways to the stock market, and they may mimic it to some degree when it has sharp increases or decreases. Strong economic growth reflected by the stock market rising is certainly good for those with stocks, but it will also raise the chances of future inflation, which means mortgage rates will go up in turn. The inverse is also true – the stock market dropping may not be great for all your investments, but it may lower interest rates.
Another primary cause of higher interest rates is inflation, which is measured by something called the Consumer Price Index (CPI). The CPI looks at the ways prices fluctuate for various goods and services, plus measures inflation rates by averaging price changes for goods and services.
Changes based on the CPI can be used to help properly assess cost-of-living changes. If inflation is present, it leads to higher prices across the board, including for mortgage interest rates. Lower inflation, then, means lower interest rates.
CPI is just one indicator of economic activity – several others may also play a role in fluctuating interest rates. Things like job reports, GDP reports, home sales, consumer confidence reports and several other financial benchmarks can have a major impact on the way mortgage interest rates move around. You may not think it, but these factors may have a similar level of influence over the interest rate you’ll get as your personal information like your credit score.
For the reasons above, it’s good to know everything you can about when you can lock your rate in and when this is a good idea. A rate lock protects you from rising interest rates once you’ve secured the loan but have not yet found your home – even if rates increase during the set period, you will get the lower number.
For more on why interest rates change often, or to learn about any of our mortgage services, speak to the staff at VIP Mortgage Inc. today.
*The views and opinions expressed are my own and do not necessarily represent the official policy or position of Primary Residential Mortgage, Inc.