If you’ve ever tried to watch mortgage interest rates, you’ve probably gone crazy watching them change not only daily, but sometimes several times a day. Just when you think you’ve found the right interest rate, you may lose it just by waiting even a few hours.
What causes interest rates to be so volatile? While there’s no method to the madness and no way that you can predict what rates will do, you can learn why they change so that you have a better idea of what to expect.
What’s the Economy Doing?
Interest rates are heavily affected by the economy. When things are good, interest rates may increase. There’s no reason to keep them low because that would make it even easier to qualify for a mortgage. Spending could get out of hand and housing prices could skyrocket, causing the economy to take a turn for the worse. When borrowers can afford higher interest rates, lenders go ahead and charge them.
If the economy isn’t having such a good time and houses aren’t moving off the market, interest rates may drop. This is done in an effort to encourage more people to buy a home. When more people buy homes, the economy starts to do better because there’s money flowing through the economy.
Has the Federal Reserve Stepped In?
The Federal Reserve doesn’t have a direct hand on the interest rates, as many people think they do. Instead, they step in when it’s needed. For example, if interest rates are too low and people are buying homes at an exponential rate, it could cause inflation. Some inflation can be good, but too much can hurt the economy. In this case, the Fed may step in and increase rates to slow things down.
On the opposite end, if interest rates are too high and people can’t afford loans, it could cause a depression. That’s obviously not what the Fed or the consumers want. If the Fed doesn’t see the economy working things on out on their own, they may step in to take control by lowering interest rates in an effort to make them more affordable.
World Events May Cause Panic
Sometimes world events can have a direct impact on interest rates. World events can influence consumers’ confidence in the economy. If consumers panic and don’t spend money, they won’t be buying houses. This can have a negative effect on the economy. This could cause interest rates to decrease, again, in an effort to get things moving in the economy.
Good events can even affect interest rates, though. If consumers feel good about what’s going on in the world, they may feel safe spending their money. As too much money flows through the economy, inflation can occur. This may cause lenders to increase interest rates slightly, just to slow things down for a bit.
There’s no rhyme or reason as to why interest rates change on a daily basis, though. There isn’t one mathematical equation you can use to determine when rates will be where you want them. If you are in the market for a mortgage, keep an eye on rates as well as the state of the economy. If it looks like things might get a little hairy, you may want to lock your rate in right away in order to avoid the increase. If things seem on an even keel, though, you may hang out for a while to see if you can snag an even lower rate in the future.