Understanding Mortgage Rates Can Save You Thousands of Dollars!

A mere eighth of a percent for a mortgage rate can save you thousands of dollars. As a consumer, the more you know about how mortgage rates are determined will help you tremendously when shopping around. And if you are not shopping around, you need to be! When trying to determine when rates will go up, watch the bond rates. Typically, mortgage rates follow bond rates. Don’t confuse this with bond prices which have an inverse relationship with interest rates. When the economic outlook is poor, the market turns to bonds for reduced risk. When the outlook is good, investors turn to stocks which lowers demand for bonds. This lowers bond prices which pushes up the interest rates. With the recent dramatic decrease in China’s stock market, top financial analysts such as Larry Summers, former US Treasury secretary, have speculated that “the US Federal Reserve may be forced to ease monetary policy, rather than hiking interest rates in the next few months as had been expected”.

So, the moral of the story is to be aware of how mortgage rates are determined, watch the bond/stock market and shop around. Just these few things will put you at a huge advantage when deciding how to finance one of your biggest (if not THE biggest) investment of your life. Be empowered, be informed and prosper!

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