Most of us, generally buy one home, and then spend the rest of our lives there. There are a very few people, who actually keep on changing their homes, frequently. So, therefore practically, we all are first home buyers, since, we only buy one home in our lifetime. When we buy a home, the common practice for first home buyers is that, they always go for the cheapest mortgage rate, not knowing that these rates are subject to increase or decrease in the future. Now, if you are thinking of buying a home, then it is really important for you to understand the mortgage rates, because, then you would be in a better position to judge a mortgage, not only by its rate, but also other things. In this article, let us actually understand how mortgage rates work.
The first and foremost thing, which you should understand about mortgage rates, is that these rates are not fixed and are pretty unpredictable and depends upon a lot of other things like, market economy. Today, if you are seeing a higher rate for a mortgage, they may get low tomorrow too. At one point of time, these rates were stable, when the banks handled them. But, after the 1950’s, Wall Street took over, and linked them with bonds. So, if for instance, the price of the bond is decreased, the rates of mortgage also decrease.
Now, the most important question is, then how do you know that when these mortgage rates fall, and therefore when is the best time to apply for a mortgage then. Unfortunately, only wall street has real time access to this data, and they actually pay tens and thousands of dollars in order to get this information. These information in wall street is also called as MBS or Mortgage Backed Securities.
Since, you have no access to these data, the best option you have is to take an educated guess.
- If the inflation rate is falling, then it is guaranteed that you will get a lower mortgage rate. Since, inflation actually increases the demand for mortgage, it generally decreases the mortgage rate.
- If the economy is weak, or the economic data for a quarter suggests that a country is going through a weak economic phase, then the mortgage rates decrease, since the demand goes up.
- In case of a war, calamity or a disaster, the mortgage rates come down, since these ‘uncertainties’ increases demand for mortgage bonds.
On the contrary, increase in inflation rates, or a strong economic data for a given quarter of the year, may increase the mortgage rates. Also, a calm and a normal geopolitical situation may also mean that, the mortgage rates are going higher.
Mortgage also depends on your credit score often. The higher your credit score is, it is more likely that you will get a lower mortgage rate.
If you are planning to buy a new property, understand the mortgages, and the options that you have got. Do whatever makes the most sense to you!
SuperRates.com provides the best mortgage rates. Visit the website to know more about the current mortgage rates. You may also get a free phone appointment.