What Factors Influence Home Loan Interest Rates?

While most borrowers think that the interest rate on their mortgage is directly affected by their finances and their credit score, the truth is that a person’s credit standing is only part of the equation. Lenders like MORTGAGE BANKER LONG ISLAND consider several different factors when determining the base interest rate to charge on home loans. And what are these various factors? Read below to know.

The first factor that has a direct impact on mortgage interest rates is the state of the housing industry. Obviously, with lower demand for houses puts down pressure while a higher demand causes an upward surge in the interest rate.

The second factor that has a direct bearing on home loan interest rates is inflation. Inflation refers to the increase in the price of commodities. Lenders are always cautious about the real profit that their loan products pull in. Inflation causes the dollar to lose its purchasing power. So, if a bank charges five percent and the inflation is at two percent, the bank only has 3 percent in real profit. Not surprisingly, because of this drive for real profit, interest rates also rise with the increase of inflation.

Economic growth can also drive the cost of a mortgage. When the economy is good, more people are in the mood to buy houses rather than rent, driving the demand for a mortgage.

In the United States, the interest rate is also affected by the policy of the Federal Reserve. While the Federal Reserve does not directly dictate it, increasing the money supply lowers the interest rate while decreasing the supply has the opposite effect.

As you can see from above, many factors have an impact on how much base interest rate borrowers get charged for their home loans. Credit scores onlIntery dictate how much each borrower specifically pays.