If you are interested in buying a new home you have probably been investigating current mortgage interest rates. Interest rates have been at a historic low, which has encouraged more and more people to take out loans or switch from renting to owning. If low rates have made you feel as though now is the time to buy a new home, filling out our free short form can help you contact up to four lenders about your low interest mortgage.
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Mortgage interest rates rise and fall every year, and there are many predictions that the low rates that have been available are about to rise. Banks and lenders base these predictions on the activities of indexes that are used to set interest rates and the best way to understand how your possible mortgage interest rate is to understand these indexes. Most indexes are published monthly or yearly and can often be found online.
There are several indexes that may affect your interest rate:
- The prime rate is often given to a lenders most credit-worthy clients, such
a corporations and large businesses. This rate is constant from bank to bank
and remains very stable. Considered by many an indicator of the future direction
of interest rates, changes in this index will often cause an identical reaction
in the interest rates on consumer loans, such as car loans and credit cards.
- The U.S. Treasury Security Yield is an average of the monthly of a one,
three or five year U.S. Treasury security and is published yearly by the Federal
Reserve Board. Adjustable rate mortgages are often set by this index.
- The Federal Fund Rate, or the Fed Fund Rate, has a large impact on inflation
and long-term interest rates. Set by the Federal Open Market Committee, changes
in the Federal Fund rate can stimulate or slow down economic growth. This
rate is used on funds that banks lend to each other over night.
- The 11th District Cost of Funds generally follows the same pattern as a
one-year U.S. Treasury security yield and, like the U.S. Treasury Security
yield, is used to set rates for adjustable rate mortgages. This rate is comprised
of a weighted average from the 11th Federal Home Loan Bank District, made
up of California, Nevada and Arizona.
Current mortgage interest rates are important to consider no matter what type of loan you are considering. If you want a fixed rate loan, the rate that you lock in will be with you for the next fifteen to thirty years. If you have an adjustable rate loan, it will be important to understand how the above indexes will affect your loan and it could be in your best interest to research the index that your rate will be based on. Information on the history of these indexes and also on how they are established can usually be found online.