When getting a mortgage or home loan, many borrowers wonder about what factors impact interest rates in a more general sense. An individual’s credit history and FICO score will impact what type of interest rate is available to them, but many wonder what factors aside from the economy determine interest rates in a broader sense. That’s precisely what lending professional and loan officer Sonia Krietz will explore in today’s article.
What Determines Interest Rates?
When the economy is strong, unemployment figures are low, consumers are spending money and companies are profitable, the Federal Reserve will increase short-term interest rates to prevent the economy from building too fast, resulting in inflation.
Inflation occurs when there is too much money, with too few goods and services. This results in higher prices and lower dollar value. Raising interest rates serves to prevent inflation by slowing the economy. Higher interest rates mean higher borrowing costs for individuals and businesses; and that usually means there’s less money to spend elsewhere. This is how interest rates impact the economy.
The Federal Reserve will lower short-term rates when the economy is slowing. When interest rates are lowered, it’s less expensive to borrow money, so this drives purchases and economic activity, which helps prevent a recession. Consumers and businesses can afford to buy more products and services when interest rates are lower. This also keeps people employed.
A recession occurs when consumers spend less than is needed to keep the economy afloat. Job losses, failing businesses and general economic woes are the result.
When the Fed cuts short-term rates it is cutting the rate that banks charge each other to borrow money. Those cuts are eventually passed on to businesses and consumers. The same thing happens in reverse when the Fed raises short-term rates.
Some other things can also impact interest rates, including oil prices, the international economy and politics. But these issues tend to have a more short-term or erratic impact on the economy and it can take months for the “trickle down” to take effect.
While a high interest rate can benefit you if you have money in a saving’s account (since you’ll earn more interest), those same rates can harm you as a borrower since you’ll need to pay more to borrow money.
Let Loan Officer Sonia Krietz Help With Your Mortgage Loan
If you’re ready to get a home loan, wish to refinance a mortgage or need help with credit repair services before you obtain a new loan, contact lending professional and loan officer Sonia Krietz, with Security National Mortgage Company. In addition to offering mortgage loan lending services, Sonia can also guide you through the process of repairing your credit and maximizing your FICO score so you can increase your chances of not only getting approved for a mortgage, but you may also be eligible for a lower interest rate!
Readers may also wish to learn more about the difference between pre-qualification and pre-approval for a mortgage loan, along with what factors impact interest rates.
Also be sure to read Sonia’s related article to learn more about home loan refinancing and how refinancing works.
You may wish to complete the pre-application form and Sonia will be in touch to help you proceed through the process. If you have any questions or concerns, you can also contact Sonia Krietz by phone at 916.385.9716.