If you're thinking about buying a home, you might have noticed that mortgage rates went really low, then went up a lot, and now they are coming down a bit. Have you ever wondered why this happens?
The answer is not simple because many things can affect mortgage rates. Here are a few important factors.
Inflation and the Federal Reserve
The Federal Reserve (Fed) doesn't decide mortgage rates directly. However, the Fed can change the Federal Funds Rate based on things like inflation, the economy, and employment rates. When this happens, mortgage rates usually change too. Business Insider has more details on this.
“The Federal Reserve slows inflation by raising the federal funds rate, which can indirectly impact mortgages. High inflation and investor expectations of more Fed rate hikes can push mortgage rates up. If investors believe the Fed may cut rates and inflation is decelerating, mortgage rates will typically trend down.”
In the past few years, the Fed increased the Federal Fund Rate to tackle inflation. This made mortgage rates go up. Luckily, experts think both inflation and mortgage rates will get better this year. They are saying that the Fed might lower the Fed Funds Rate this year because inflation is slowing down, even though it hasn't reached their preferred level yet.
The 10-Year Treasury Yield
Furthermore, when mortgage companies determine how much interest to charge on home loans, they pay attention to something called the 10-Year Treasury Yield. If the yield goes higher, mortgage rates tend to increase as well. On the flip side, when the yield goes down, mortgage rates often decrease. This information comes from Investopedia.
“One frequently used government bond benchmark to which mortgage lenders often peg their interest rates is the 10-year Treasury bond yield.”
In the past, the difference between the 10-year Treasury Yield and the 30-year fixed mortgage rate stayed pretty much the same. However, lately, things have changed. This suggests that there's a possibility for mortgage rates to decrease. So, watching how the treasury yield is going can help experts guess where mortgage rates might go in the future.
As the Fed meets again in the coming weeks, industry experts will closely watch their decisions and how it affects the economy. If you want help dealing with any changes in mortgage rates and how they might affect your moving plans, it's a good idea to have us by your side.
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