Trying to find the best rate on a new mortgage is a daunting task, even for a professional. While there are indicators online and elsewhere, the difference between what's being sold and what you can actually get is the result of a number of factors. We'll go over some of the factors that influence mortgage refinance rates here.
1. Inflation. It's a rise in the price of services and goods over a prolonged period of time. When prices rise, each currency unit can buy less. Annual inflation is a protracted decline in the buying power of currency. An indicator of inflation is the inflation rate, which is the yearly percentage change in the Consumer Price Index. Inflation is the main enemy of fixed-income investments, and it is an indicator of how much the investment market is willing to pay for mortgages, thereby setting mortgage rates.
2. The Federal Reserve. In its most recent stimulus attempt, the Fed spent almost its entire budget buying mortgage backed securities (MBS). Many people think that this approach kept mortgage rates down for the ensuing year and a quarter. The lending climate shifted between 2008 and 2010, when the market was left to its own devices.
3. Unemployment. A drop in unemployment numbers tends to suggest a rise in mortgage rates. Higher levels of unemployment result in reduced inflation, which makes bonds and MBS a safer proposition. However, the method used to compute unemployment is flawed; it fails to account for those who are underemployed, those who have altogether quit looking for work, and those who want jobs but are not part of the labor force.
4. GDP. Also called gross domestic product, it's a measure of a country's economic output. The US Federal Reserve cuts rates when the GDP drops, which encourages people to borrow money. When the GDP gets higher, there is a corresponding rise in inflation and a rise in mortgage rates.
5. Geopolitics and world events. Political events, conflict and even natural disasters will lower mortgage rates. Anything unforeseen by the market can result in uncertainty, and when the market reacts, investors shift their focus to more stable instruments such as bonds, which can lower rates.
Economic data is tallied almost daily, and some factors have more influence on mortgage rates than others do. If you are buying or selling real estate, you should learn more about these factors, or hire a professional that is already familiar with them.