What Are Mortgage Rates Based On? - Rates Are Based on Many Things

What Are Mortgage Rates Based On? - Rates Are Based on Many Things
By [http://ezinearticles.com/?expert=Reese_Evans]Reese Evans

What are mortgage rates based on? So many factors go into determining mortgage rates. It's one thing to come up with the rates we see listed at banks and in the paper but then it's a whole other equation to come up with a rate that is offered to you when you apply for your mortgage. That rate depends on several personal factors. It's not just federal agencies that are responsible for the increase or decrease of mortgage rates, it can depend on everyday people like us.

Short term loan rates that are based on the Prime rate, like car loans, credit cards and home equity loans are automatically lowered when the Feds cut rates. Longer term loans such as mortgages aren't because they are based on competing investment options, for instance investing in stocks rather than real estate.

When the Fed cuts rates, it send a signal to the stock market that the economy is doing well, making stocks more appealing as an investment. People start taking money out of the mortgage backed securities and bond market and put it into the stock market, thus lowering the demand for mortgage backed securities and bonds.

With people investing more in the stock market, the companies that issue bonds and mortgage backed security investments raise the rates to entice investors back into the fold with higher yields, essentially higher rates. The return on mortgage backed securities is based on the income stream from the payment on mortgage loans. In order to raise the yields/rates on mortgage backed securities, the actual rates on the underlying mortgages must rise. That is why mortgage rates can rise when the Fed cuts interest rates.

What are the mortgage rates based on that the lenders give you? They calculate this rate by adding interest onto some average lending rate. That added cost is known as the margin. This is how the lender makes their money and they are not going to tell you what the margin is. It's like not knowing the sticker price on a car so you can't negotiate. The best way to negotiate is to get quotes from several different lenders. They will look at your risk profile and come up with a rate for you. You can then determine which lender you want to work with based partially on their offered rate.

Mortgage rates are based on many other factors besides the security market. Your offered mortgage rate can depend on the mortgage amount, down payment amount, income, debt to income ratio, market value of property, FICO or other credit scores and the type of property.

Stop asking what are [http://www.real-estate-in-the-know.biz/general/what-are-mortgage-rates-based-on.html]mortgage rates based on and Get In The Know. Get information about buying and selling homes, different mortgage types and other real estate information at [http://www.real-estate-in-the-know.biz]Real Estate - Get In The Know

Article Source: [http://EzineArticles.com/?What-Are-Mortgage-Rates-Based-On?---Rates-Are-Based-on-Many-Things&id=2299737] What Are Mortgage Rates Based On? - Rates Are Based on Many Things