When you look at the current mortgage rates, you will see a range of different interest rates from different lenders and banks. If you keep looking at those rates over a length of time, you might notice that, despite the range of offers, rates tend to go up or down in relative unison. Understanding the trends behind Chicago mortgages can help you understand when to make a move on a property and get the best investment out of the market.
So, what makes mortgages go up and down?
Effect of inflation on mortgage rates
Inflation causes prices of all commodities to gradually increase. As that happens, the purchasing power of the average person dwindles, especially if income doesn’t rise at the same rate. Mortgage brokers, in response, have to increase interest rates to combat the hike caused by inflation. If inflation rates are high, mortgages will increase. If inflation is slow, mortgage rates might remain steady or simply rise at a much slower pace. Inflation is inevitable so it will always play a factor in causing mortgage rates to slowly go up over time. This rise can be combated by some of the other factors mentioned below.
Effect of the strength of the economy
A strong economy creates a strong demand for commodities and assets, including property. When GDP and employment rise, this is the sign of a growing economy. There are more people with more purchasing power, which means there’s a greater demand for real estate. Where there is greater demand, there are higher mortgage rates. Because lenders only have a finite amount of money to lend, they have to charge higher mortgage interest rates so that they are able to lend more mortgages to more borrowers in future. If the economy is taking a turn for the worse, and there is a greater supply than a demand, mortgage rates will go down with it.
Current scenario of the housing market
The same principles of supply and demand apply to the housing market, too. When there are more homes being built or resold, there is an increase in the demand for mortgages. As a result, the current mortgage rate will go up. If there are fewer homes on the market, there will be fewer people applying for mortgages. This causes the mortgage rates to go down. Similarly, if there are more people renting vs. people buying homes, that also results in a drop in demand, which means a drop in the mortgage rates. The shifts in the housing market are often restricted to specific areas and cities, so if you want to know what Chicago mortgage rates will be like, keep an eye on the Chicago housing market. Are there more new renters than new buyers? Are there fewer new homes being built or resold? If so, you can expect that Chicago mortgages will have lower interest rates.
The Federal Reserve
The Federal Reserve Bank plays a key role in interest rates, including mortgage rates, as well as the economy as a whole. This is primarily due to their monetary policy. The Fed raises or lowers the federal fund’s rates, which is the interest rates that lenders charge each other for short-term loans. This creates a ripple effect in the rates of banks which goes on to influence long-term loans like mortgages, too. It’s not often there is a one-to-one shift in rates, but if there is a higher federal funds rate, you can expect that mortgage rates will rise as well.
The bond market
Investors, in general, turn to bonds when the economic outlook is poor. They are a safer investment than what is offered in most other markets. If people are investing in bonds, they’re not investing in other assets as much. When there are more investors in bonds, the bond yield rises, and mortgage rates tend to rise as well. This is because banks and investment firms sell mortgage-backed bonds in the same market. To make those bonds a more appealing investment, they have to make them competitive against the rest of the securities market and they do that by increasing the mortgage rate.
If you want to make the best property investment possible, keeping an eye on the current mortgage interest rests is your best bet. A & N Mortgage is a mortgage broker based in Chicago that regularly updates mortgage rates based on the national averages. By keeping your eye on the marketing and noting the trends mentioned above, you can get the mortgage you’ve been waiting for at the rate you can afford.