Mortgage Rates Predictions
| Every time the Federal Reserve adjusts interest rates, borrowers expect their mortgage rates to reduce. The fact is that interest rates on mortgage loans tend to increase after the reductions made by the Federal Reserve, an aspect that borrowers always fail to understand. |
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One way to guard against this phenomenon is to predict the changing mortgage rates in future.
Direction of interest rates on mortgage loans is primarily influenced by the purchase and sale of mortgage-backed bonds, also known as mortgage backed securities (MBS) that are issued by Fannie Mae and Freddie Mac. If the number of bonds sold by the government is more than the number of bonds being purchased, mortgage rates tend to increase since the price on the bonds will go down and vice versa.
Another important factor that determines any fluctuations in the mortgage rates is inflation. Even, buying and selling of bonds is related to the movement of the inflation rate. Governments sell bonds in order to control high inflation. This is because increasing inflation value will have an affect on the future returns and also the value of the bonds. So as to compensate the lost value, higher interest rates are charged on the mortgage loans. On the contrary, buying back or redeeming of bonds will cause a decrease in the interest rates.
Hence, mortgage rate movement can be predicted either by plotting inflation against mortgage rates or just by calculating the ratio of federal bonds sold versus the number of bonds that have been bought back.
One more factor that influences interest rates is the stability of currency. A stable currency tends to keep the interest rates low, while a weaker currency increases interest rates. This is because a weak currency tends to discourage investors from making funds available for bonds or mortgages. One can predict interest rates depending on this factor too.
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Mortgage Rates Predictions