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Current Mortgage Rate Comparison
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Market and Interest Rates
When the government
lowers interest rates, mortgage interest rates usually go lower,
but that is not always the case. Here are a some examples why
mortgage rates sometimes go up when the government lowers
rates:
- When government lowers
rates, they lower the Federal Funds rate. This is the rate at which
large banks lend money to one another and is a short term rate.
Mortgage rates are long-term up to 30 years. Long term rates
are more sensitive to expected inflation. When short term rates
decrease, borrowing and spending usually increase, which causes
inflation to rise. Long term rates, like mortgage rates can rise
when there is a potential inflation increase.
- Markets are often ahead
of the government. Interest rates are calculated every day in
public markets. If those markets think the economy is slowing,
interest rates may decrease as markets anticipate that the
government might decrease short term rates. This happened before
when mortgage rates began steadily decreasing, even when the
government left their short-term rates unchanged. The opposite can
happen as well. Mortgage rates can increase well ahead of the
government increasing short term rates.
It is practically
impossible to accurately predict the future of something as complex
as the economy. But, it is important that we,mortgage consumers,
understand these market dynamics, otherwise lack of
understanding could cost us a lot of money.
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