Why Do Interest Rates Change?

There Are Three Primary Reasons The Interest Rates Fluctuate. Keeping an eye on the trends and understanding what factors will have bearing on rate movements is a smart way to stay ahead of the game if you are shopping for a mortgage, or currently have a Adjustable Rate Mortgage (ARM) in effect that you may want to get out of through refinancing and restructuring of you current loan agreement.

1. The economy is the single biggest factor effecting interest rates. Banks follow the lead set by the Federal Reserve. If the Fed's rates goes up or down, so will the lending rates. Supply and demand will also influence interest rates. When there is a greater demand for properties the rate increases, and conversely it will go down as the demand diminishes. When the economy tends to slip into the doldrums, and become sluggish, rates drop as well to spur lending, property acquisition and the construction sector. It is an effort on the part of the Fed to boost the economy and GET cash flowing. Just like a car on a cold winters day they are attempting to jump-start the economy.
   
   
2. Similar to the economy, the Bond market can influence interest rates relative to its performance.
   
   
3. Mortgage companies, like most other businesses, are all in competition with each other and the forces of the market. By doing some comparative shopping, and discussing the terms and conditions that others have offered you for a mortgage, lenders will be compelled to lower the rates if they want youR business. Do not be afraid to ask questions and to seek a better deal when meeting with your prospective lenders.

Note: Never forget that you, more than anyone else, directly affect the rates you will receive. Simply by having either good or bad credit you will respectively have good or bad interest rates offered to you. Always do your utmost to maintain a sterling credit history, pay your bills on time or before they are do, and keep your debt-to-income ratio balanced.

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