Mortgage Rate Determinations – The Basics

Gavin Ekstrom pic

Gavin Ekstrom

Gavin Ekstrom has led as senior manager for Citywide Home Loans in the Denver, Colorado, area since 2005. Gavin Ekstrom comes to his role following 15 years as a loan officer, during which time he helped numerous clients apply for and understand mortgage lending.

The complex process of mortgage rate fluctuation begins with the basic rules of supply and demand. If there is a high demand for mortgages, rates are likely to rise so that lenders can take advantage of consumer interest. Similarly, if homeowners show a greater interest in selling, rates often rise commensurately with increased home availability.

Mortgage rates also depend on the overall health of the economy. When indicators such as job availability reports and consumer confidence show a thriving economy, mortgage rates tend to rise in turn. Inflation tends to have a similar effect, as fears of a limited money supply causes a rise in interest rates.

Banks offer additional consideration to the likelihood of finding buyers for mortgage-backed securities. A rise in loan origination can lead to a drop in prices, which drives rates higher. For this reason, federal buyers often step in and purchase securities to keep prices low and thus benefit the consumer. The overall process is extremely intricate, but demand remains a primary driving force.


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