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It’s easy to get confused about what really impacts mortgage interest rates. You’ve probably heard ongoing news reports about the Federal Reserve (i.e. the central bank of the U.S.) not raising rates until 2020 and how this provides a different outlook for the housing industry in 2019. Let’s clear things up and break down what all of this means for you.
How Are Mortgage Interest Rates Determined?
Even with the Fed deciding not to raise rates on their side of things until 2020, mortgage rates will continue to go up and down. Many people are now asking how can the Fed not raise rates but mortgage interest rates still fluctuate?
Mortgage rates are determined by a variety of factors from inflation and economic growth to housing market conditions and the Fed’s monetary policy—that’s why they’re constantly changing! Unfortunately, interest rates will forever be a moving target.
A Deep Dive into the Impact of the Federal Reserve
The United States Federal Reserve Bank set up a monetary policy to help determine the actions the Fed makes to help the nation with high employment rates, stable prices (aka inflation) and interest rates. Each of these things affect the amount of federal funds available in our banking system (as a whole) so it’s important the Fed keeps track of ongoing changes. This allows the Fed to provide financial forecasts to keep our country’s bank reserves healthy for long-term economic growth.
As the Federal Reserve meets (usually four times a year or so) they look at buying or selling Treasury bills and mortgage-backed securities (MBS) which influence the mortgage rates that trickle down to home buyers. When the Fed buys more securities, rates tend to go down and when the Fed sells securities, mortgage interest rates usually move up.
When the Fed met back in March 2019, they made a bold statement by saying they would not raise the benchmark Federal Funds Rate for all of 2019, and maybe only once in 2020. This benchmark rate directly influences short-term interest rates affiliated with credit cards, deposits, bank loans, and adjustable rate mortgages – in addition to being an indicator of the overall health of the U.S. economy.
Now Let’s Talk About Your Individual Interest Rate
You might be wondering how your mortgage interest rate will be determined for your home loan. There are 7 key factors that impact your personal interest rate:
  1. Type of loan. Different categories of loans (like conventional, fixed rate, FHA, USDAVA etc.) all have different rates.
  2. Type of interest rate. Mortgage interest rates come in two basic types—fixed and adjustable. Fixed rates do not change over time while adjustable rates change based on what is going on with the market.
  3. Loan term. The length (i.e. 30-year vs. 15-year) of your loan will affect your interest rate too. Shorter terms usually have smaller rates.
  4. Down payment amount. Generally, a higher down payment means you’ll have a lower interest rate on your home loan. This is simply because you’re putting more money down upfront which impacts the amount of your monthly payment and your interest rate.
  5. Credit score. In general, if you have a higher credit score you’ll receive a lower rate than if you have a lower credit score. The exception here is if you have no credit score. Churchill is one of the few lenders who specializes in no score loans. We work hard to make sure you’re not penalized for non-traditional credit.
  6. Home price and loan amount. Your home price minus your down payment will determine how much you’ll borrow which helps determine what your rate will be.
  7. Home location. The state you live in and the location (rural or city) is another one of the determining factors.
Just Remember…
Interest rates are still historically low. In fact, they remain at their lowest levels in years which is great if you’re looking to buy a home or refinance your current mortgage from a higher interest rate. Many analysts are revising their original 2019 forecasts indicating lower interest rates than what was initially predicted. If you’re in the market for a new home or looking to refinance your current mortgage, the best way to make sure you’re getting the best rate for your situation is to work with a Home Loan Specialist in your area.
Reach out if you have any questions about interest rates or if you just need more information about the home loan process. We’re happy to help set you up for success!

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