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The only constant is change, especially when it comes to your mortgage rate. One primary factor of mortgage rate movement is inflation. Inflation is a growing economy and increasing prices of goods and services. A growing economy means a higher demand for goods and services, allowing producers to increase their prices. This increase in prices therefore results in higher real-estate prices, higher apartment rents, and higher mortgage rates. The Federal Reserve attempts to reduce inflation and slow down economy by decreasing interest rates. In the process, mortgage rates are lowered. Although mortgage rates have the propensity to fluctuate in the same direction as interest rates, their actual movements may also be based upon mortgage supply and demand. Compared to interest rates, mortgage rates have a slightly different equation in their supply and demand. This difference explains why mortgage rates tend to move differently from other rates. For example, lenders may be committed to close additional mortgages. In doing so, they will have to decrease the mortgage rates even when interest rates are going up. Additional Factors Affecting Mortgage Rates There are other factors, besides inflation, that influence mortgage rates. Naturally, your mortgage rate will increase as the amount of the loan increases. This expansion of mortgage rates is particularly true when the loan amount exceeds your established loan limit. The loan limit will usually change at the beginning of each year to conform to mortgage rate trends that have been established. The duration of the loan can also affect mortgage rates. A shorter loan period will usually equate to a lower mortgage rate, and a longer loan can bring about higher rates. You can save thousands of dollars in mortgage payments on a loan with a fifteen or twenty year note. Of course, a shorter loan term will also mean you're your monthly mortgage payment will be higher. It's possible to avoid these high payments with an adjustable mortgage rate. This plan can allow you to start out with a lower mortgage rate, but your monthly mortgage payment will increase if the current interest rates go up. Fixed mortgage rates are typically higher than adjustable rates, but they provide the opportunity to save money as interest and mortgage rates increase. A higher down payment can help you to save on your monthly mortgage rate payments. By making a down payment of at least twenty percent, you can get the best possible mortgage rate. If your down payment is smaller you'll have less equity in the property. Less equity means less collateral, so your mortgage rate will be higher. Discount points can also affect mortgage rates. A lower mortgage rate generally means higher points paid on your loan. This same rule applies for lender fees such as closing costs. Higher closing costs paid to the lender will result in lower mortgage rates. If you choose not to pay for all the closing costs up front, the lender will increase your mortgage rate to accommodate the additional fees. The concept is quite simple. Lenders are generally willing to lower mortgage rates as long as more money is paid upfront. More money down results in lower mortgage rates. And less money down results in higher mortgage rates.
Article Source: http://www.realestateinvestmentarticles.net
Writer Emanuel Elley contributes to numerous web magazines, such as duzat.com and litoc.com.
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