What Causes Home Loan Rates to Move Up and Down?

The Federal Reserve monitors the U.S. economy and, when necessary, takes steps to address inflationary concerns to avoid economic recession. When the Fed discusses interest rates, it is primarily concerning the Fed Funds Rate, which is the rate banks use when lending money to each other overnight.

Home loan rates, on the other hand, are dictated by the trading of Mortgage Backed Securities (MBS), which are a type of Bond.

At the real heart of home loan rate movement is the dual relationship between Stocks and Bonds, as they compete for the same investment dollars on a daily basis. Inflationary pressures, economic conditions and geopolitical events all influence the direction of both Stocks and Bonds.

When economic reports are weak or disappointing, investors often move their money from riskier investments like Stocks into Bonds, which are considered safer. Since home loan rates are tied to Mortgage Bonds, this helps home loan rates improve.

In contrast, strong economic news often causes investors to move their money into Stocks to take advantage of any gains. This can cause Mortgage Bonds and home loan rates to worsen.

Inflation reduces the value of fixed investments like Bonds. This means that a low inflation environment tends to be good for Mortgage Bonds and home loan rates, while high inflation can cause both to worsen.

Political turmoil or economic crises around the world can also cause investors to move their money into the safety of the Bond markets, helping Mortgage Bonds and home loan rates improve.

If you are second-guessing whether now is a good time to refinance your home, give me a call. We’ll analyze your financial situation together and create a plan that’s right for you.

For professional use only. Not intended for consumer distribution.
Information is subject to change without notice. This is not an offer for extension of credit or a commitment to lend. West Coast Mortgage Group is not affiliated with the U.S. government, HUD, FHA, VA, or any other government agencies. For additional information about West Coast Mortgage Group, visit the NMLS Consumer Access page at www.nmlsconsumeraccess.org. NMLS #5084.

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