Interest Rates, Credit Scores, and Purchasing a Home
Two housing-market shifts encourage potential homebuyers to call real estate agents. The first is a drop in housing prices and the second is low mortgage rates. Deciding which factor is more important can make a difference in several areas, the most important may be in your wallet.
If it seems like you keep hearing about mortgage rates hitting yet another record low, that’s because you are. The 30-year mortgage rate just hit eighth record low so far this year. Many ask what drives the rates so low. This is a combination of many factors but the bond market sets the pace. That’s because home loans are packaged as bundles of securities and sold in the bond market. Global and national news events steer bond prices higher and lower, and mortgage rates move similarly in response.
Are interest rates going to rise?
Mortgage rates have fallen since the beginning of 2019, for multiple reasons: trade tensions with China, a perception that the economy is slowing and persistently low inflation. The Federal Reserve cut short-term interest rates by a quarter of a percentage point in July and again in September. While lower short-term interest rates don’t immediately affect long-term mortgage rates, they will compel longer-term rates to fall over time. Mortgage rates are most likely to move higher in response to good economic or political news, and lower in reaction to bad news. The Fed is loosening the money supply (reducing interest rates) because of lower-than-desired inflation and concerns that economic growth is slowing.
How do your credit scores affect your rate?
Your credit scores influence your mortgage interest rate. Lenders call it “risk-based pricing.” Higher credit scores indicate a lower risk that you’ll default on a loan — so you get a better interest rate. The lower your credit scores, the higher your interest rate.