4 Things That Influence Home Mortgage Rates

Mortgage interest rates represent the cost of borrowing money to buy a home. They’re influenced by a variety of factors, from the well-being of the overall economy to the Fed’s monetary policy. Keep reading to learn more about what impacts mortgage rates so you can be well-informed when shopping for a home loan.

The Economy

Home buyers are often very concerned about mortgage rates, as even a small change can significantly impact their monthly payments. For this reason, many home buyers closely monitor changes in the economy, as economic indicators can provide insight into future changes in mortgage rates.

Generally speaking, home buyers are more confident and willing to take on larger mortgages when the economy is doing well. As a result, demand for mortgages increases and mortgage rates tend to rise. Conversely, when the economy is struggling, home buyers are more cautious and less likely to buy a home.

This decrease in demand can cause mortgage rates to fall. However, it's important to remember that there are many factors that affect mortgage rates, so predicting future changes is never an exact science.

The Federal Reserve

Home buyers may be wondering how the recent change in federal reserve policy affects mortgage rates. The answer, however, is not entirely straightforward. The federal reserve sets interest rates in order to help manage the economy.

When the economy is strong, the federal reserve typically raises rates in order to prevent inflation. On the other hand, when the economy is weak, the federal reserve lowers rates in order to encourage lending and investment. The goal is to keep the economy growing steadily rather than too quickly or too slowly.

So, when deciding whether to raise or lower rates, the federal reserve looks at a variety of economic indicators, including employment levels, inflationary pressures, and consumer spending. In general, home buyers can expect mortgage rates to rise when the economy is strong and fall when the economy weakens.

However, it is important to remember that there are many factors that can affect mortgage rates and that the federal reserve is just one of them. For example, home prices and demand changes also impact mortgage rates. As a result, home buyers should always consult with a mortgage lender to get up-to-date information on current market conditions.

Credit Score

For home buyers, one of the most important factors in securing a mortgage is their credit score. A good credit score indicates to lenders that a borrower is responsible and likely to repay their debt. A low credit score suggests the opposite. As a result, home buyers with high credit scores are typically offered lower mortgage rates than those with low scores.

This is because lenders view these borrowers as being less of a risk and thus are willing to offer them more favorable terms. For home buyers with poor credit scores, raising their score can be the key to securing a lower interest rate on their mortgage. There are a number of ways to improve one's credit score, such as making timely payments and maintaining a good credit history. By taking these steps, home buyers can put themselves in a much better position to get the best possible mortgage rate.

Home Prices

The housing market also has an impact on mortgage rates. When home prices are rising quickly, it signals that demand for homes is high and there’s more competition among buyers.

To attract buyers in this situation, sellers may need to offer incentives like including closing costs or offering a lower interest rate on the home loan. On the other hand, when home prices are falling or growing at a slower pace, buyers are less competitive, and sellers don’t need to offer as many incentives. As a result, mortgage rates may be higher in this market condition since sellers are less pressured to compete for buyers.


There are many factors that affect home mortgage rates – from the well-being of the overall economy to whether or not the Federal Reserve changes its discount or federal funds rate. It’s important to know how these factors can impact mortgage rates so you can plan accordingly when shopping for a home loan.

MortgageWorks offers financing for new home purchases, refinance, home equity, investment property, construction, and a wide variety of loan program options to fit your every need.

Servicing the state of California and the entire Coachella Valley, including Palm Springs, Cathedral City, Rancho Mirage, Indian Wells, Palm Desert, Desert Hot Springs, La Quinta, Indio and Coachella. Call Art today @ (760) 883-5700

* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.