A Look at Mortgage Interest Rates

As a real estate licensee since 1973, I have witnessed mortgage interest rates as high as 18% and as low as 2%.  This chart by Rocket Mortgage shows mortgage interest rates since 1971.

Who sets the rates and what factors affect their decisions?  The first part of the question is easy to answer – the people who are lending the money make that decision.  The second part of the question is more difficult to answer, but supply and demand is the main underlying factor.  Other factors include (in simple terms):

1. Inflation – Lenders want to make a profit, and if everything costs more, they raise the interest rate on the money they lend.
2. Economy – If the economy is booming, more people are making more money and buying more things, so the demand for mortgage loans is greater.
3. Monetary Policy – The Federal Reserve tries to adjust their rate to control #1 and #2.
4. Bond Market – Mortgage backed securities need to be attractive to investors and are affected by interest rates of the underlying mortgages.
5. Housing Market Conditions – Location, inventory levels, construction costs and availability of labor.
6. Competition – Lenders need to be competitive in the mortgage marketplace. They keep up with each other.

Interestingly enough, whether the rates are 18% or 2%, the real estate business continues by adjusting to the given situation.  I can recall reverse amortization mortgages, split funding, wrap around mortgages, lease with purchase option, lease purchase and my favorite – owner financing. 

Contact us at the Andrews Team to discuss current market and financing conditions.