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The only constant is change, especially when it comes to your mortgage rate. Changes to borrowing rates are brought on by many factors. One primary factor of mortgage rate fluctuation is inflation. The term "inflation" is used to describe a growing economy and the increase of prices of goods and services. When the economy grows, there is a higher demand for goods and services, and producers can increase their prices. The resulting price increase brings about higher real estate prices, higher rental fees and higher mortgage rates. In an effort to reduce inflation and slow down economy, the Federal Reserve decreases interest rates, and in the process, lowers mortgage rates. Although mortgage rates have the propensity to move in the same direction as interest rates, their actual movements are also based on the supply and demand for mortgages. When compared with interest rates, mortgage rates have a slightly different equation in their supply and demand. This variance is the reason that mortgage rates will sometimes move differently than other rates. For example, a lender has an obligation to fulfill, and is forced to close additional mortgages. In order to do so, he or she would have to decrease the mortgage rates, even though interest rates may be on the rise. Other Factors Affecting Mortgage Rates Inflation aside, there are several other factors that can influence mortgage rates. The rates on mortgages will tend to increase as the loan amount increases. This higher fluctuation is especially true if the loan amount exceeds the established loan limits of the potential borrower. Loan limits will typically change at the beginning of each year to conform to current mortgage rate trends that have been established. The duration of the loan may also affect mortgage rates. Shorter loans usually equate to lower mortgage rates and longer loans can cost you higher mortgage rates. Loans with a 20-year or 15-year note can let you to save thousands of dollars on mortgage rate payments. However, this shorter time period also means that your mortgage rate payments every month will also be much 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 of fluctuating mortgage rates is quite simple. Lenders are usually willing to lower their mortgage rates, provided more money is paid up front. When you put more money down, you'll pay lower mortgage rates. Less money down, on the other hand, results in higher mortgage rates.
Article Source: http://www.rightarticle.com
Contributor Emanuel Elley enjoys writing articles for numerous popular Internet magazines, on home equity and home mortgage subjects.
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