Ever wonder what causes mortgage rates to go up and down? Well, we wish there was a simple answer, however, there are many factors that contribute to these fluctuation we see. We’ll do our best to try and simplify this complex subject.
Generally speaking, mortgages rates will drop when there is economic uncertainty and rise when positive things happened in the economy. The simple reason for this is mortgages are tied very closely to Mortgage Bonds. Bonds are an instrument that investors tend to invest in when the economy is struggling. They are considered safer than other investment tools like stocks and commodities. The more money invested in Mortgage Bonds increases the pool of money available to lend which has a downward effect on mortgage interest rates. For example, last week because of the uncertainty with the National government and the possibility of a governmental shutdown, interest rates, after steadily rising for the last several weeks, suddenly dropped primarily due to investors opting to invest in bonds. It is likely that investor uncertainty will continue at least for the next several weeks causing interest rates to continue to fall even more over the next several weeks until this issue has been addressed.
Although there are lot of economic indicators that play a part in the fluctuation of mortgage interest rates, it’s still a pretty good rule of thumb, that good economic news causes mortgage rates to rise, and bad news cause them to fall. Keep in mind, however, that mortgage rates even though they’re not as low as they were earlier this year, they’re still very attractive compared to rates just 2-3 years ago. All signs are still positive for home buyers and builders for the time being.