It is not just confusing words such as “subprime” that are plaguing the mortgage market. This trend has continued over the last couple years and while it can provide frustration for some consumers, others simply wait to take out a loan until the rates are low and they go with it.
Interest rates on mortgages depend on many parameters. When you understand what may be affecting rates for you, you may find that it is not as frustrating to find a mortgage that will work for you.
Why Mortgage Rates Change
Even in short periods of time, the fluctuation of mortgage rates can be staggering. Why, you ask? Well, one thing that affects the interest rates is the overall economy. There is a positive correlation between the state of the overall economy and the price of services.
This means that real estate prices rise as do rents on apartments and usually mortgage rates go down. When the economy is good people can take advantage of great home loan rates and get into the home of their dreams without breaking the bank on interest alone.
In an economic slowdown, the reverse situation takes place and mortgage rates rise. The public reserve bureau tries to avoid having interest rates go too high because that means that fewer people will buy, and so they will lower the interest rates to hopefully induce some buying. The idea is that when the economy slows down housing should remain affordable, which is why the PRB often steps in, having sympathy on potential buyers.
Let us not underestimate the role that a lender plays in the deciding the mortgage rate. Many lenders create quotas for the month, the quarter, or the year. The way for a lender to ensure that he meets his quota is to offer the best mortgage rates possible because this is what people are looking for.
Hence, as is easy to imagine, lenders can largely control the interest rates they charge. The interest is simply what they are making on lending the money to the buyer. If the lender lowers his or her rates by just 1% they will be lending to more people and though they are taking a cut, because they have more borrowers, they are still making money.
Mortgage rates are always changing lately. A smart buyer will shop around for good rates. You will generally find that an adjustable rate loan starts out lower than a fixed rate loan.
If you intend to move out in the short term, the variable rate mortgage might be a good option. Because interest rates are all over the place, if you plan to stay in your home for the length of the mortgage it may be better to go with the slightly higher, but stable interest rate.
Final word: Shop around. It is only then that you will find a loan that meets your needs — both quantitatively in terms of rate of interest and qualitatively in terms of the type of features that it has.