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Important Economic Factors That Can Affect Mortgage Rates

by AOG Wealth Management

The lowest possible mortgage rates are generally only available to mortgage borrowers with excellent credit histories and solid finances. This is because mortgage lenders have to manage their risk through their interest rates. But aside from the borrowers’ financial status, there are many other factors that affect the general level of mortgage interest rates. AOG Wealth Management explains more below.

Important Economic Factors That Can Affect Mortgage Rates

  • The Housing Market: Housing market conditions can affect mortgage rates because a decline in purchased homes leads to a decline in demand for mortgages. Another way the housing market can pressure mortgage rates downward is an increasing number of consumers opting to rent rather than buy a home.
  • Inflation: Inflation erodes the purchasing power of money over time, which is why mortgage lenders need to maintain interest rates at a level that can overcome this erosion and lead to profit. Mortgage lenders pay careful attention to the rate of inflation and adjust their rates accordingly. As certified financial planners, we will help you analyze these factors so you can make better decisions about your mortgage.
  • Level of Economic Growth: Economic growth indicators like gross domestic product and the employment rate also influence mortgage rates, as higher economic growth levels lead to higher incomes and higher levels of spending. This increase in demand for mortgages can pressure mortgage rates and push them upward. The opposite effect happens if the economy is weak.
  • The Federal Reserve Monetary Policy: The Fed’s monetary policies can have a significant impact on mortgage rates. Typically, decreasing the money supply increases rates, while increasing the money supply reduces rates.
  • The Bond Market: Investment banks and firms offer mortgage-backed securities as investment products, so these debt securities must have yields that are high enough to attract buyers. Government and corporate bonds offer competing long-term fixed income investments, and this competition can indirectly affect mortgage rates.

Learning more about mortgage rates can help you make sounder financial decisions. In addition to researching, you can meet your financial and tax planning goals by working with the right financial advisors. AOG Wealth Management provides personalized asset management, estate planning, financial planning and wealth management services to our clients. We are an experienced financial advising firm serving Washington, DC, McLean and all of Northern Virginia. Call us at 1-877-600-3573 to learn more about our services. You can also ask for a complimentary consultation.

The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.

Category: Asset Management