Do You Have Trouble Understanding Why Rates Go Up Or Down?

Interest rates can be looked at in two different but important ways. If you’re borrowing, an interest rate is just the cost you pay for borrowing money. On the other hand, if you’re the lender, then the interest rate is the compensation or profit you get for providing the service of lending money, as well as taking on the risk of lending it. In both of these cases, loans and their interest rates are what keep the economy moving, since they encourage borrowing, lending, and spending. However, the prevailing interest rates are always in a state of flux. Also, various kinds of loans have their own differing interest rates.

A simple guide to understanding why rates go up or down

The levels of interest rates are simply a factor in the supply and demand of available credit across the economy. When there is more demand for credit or money, then interest rates go up. Likewise, when demands for credit go down, interest rates also go down. Also, when how much credit is available grows in total volume, interest rates go down. However, when the supply of credit goes down, interest rates go up.

Interestingly, the credit supply can go up because people save more money. Most bank accounts are actually just lending money to their banks. Banks can use money from checking accounts, saving accounts, and certificates of deposit for investment activities. The more money there is here, the less it costs to borrow.

Inflation is something else that impacts interest rate levels. When inflation rates are higher, interest rates tend to rise as well. This happens since lenders tend to ask for higher interest rates for compensation, since the purchasing power of the money they get repaid will be diminished in the future.

The federal government also has quite a bit of influence on interest rates. The United States Federal Reserve, often simply just known as the Fed, frequently makes public announcements regarding how monetary policy is going to impact interest rates.

Institutions lend each other money regularly, sometimes just overnight. These very short-term loans are done at the federal funds rate, and this impacts the interest rate which banks set on any money that they lend out. This eventually trickles down through the economy into many other various short-term lending rates. The Fed has influence over these rates based on ‘open market transactions’, and those are simply just the selling and buying of United States securities that were previously issued.

Top Mortgage Comparison Tips

Mortgage comparison

Buying a home is a huge investment. Finding the right mortgage for your home is confusing and very frustrating. However, through mortgage comparison, you can get the best deal. During this time, you are supposed to speak to different mortgage lenders to assess each possible option. Here are is a checklist to help you with mortgage comparison.

What’s Better Adjustable Or Fixed Rate?

With a fixed mortgage rate, you are locked into a fixed interest rate which you will pay consistently until the loan is cleared. However, the taxes, insurance and other costs on your mortgage might increase or decrease accordingly. On the other hand, the adjustable rate can either go up or down until the loan is cleared. Most mortgage rates with adjustable interests usually start with a period of 10, 7 or 5 years as an introductory period.

During this period the rate is fixed but after that period, they can change depending on various factors such as the prime rate. Most people prefer adjustable rates because the introductory period offers lower interests. However, you should assess whether you are comfortable with your payments increasing in the future before choosing either of the two.

Expected Closing Costs

These are usually about 3% of the buying price of your house. They are usually paid when the purchase of your house is finalized. They include fees charged by lenders, appraisal costs, processing charges, insurance fees and much more. Once you have received an estimate on your house, list down the fees you can shop for in order to reduce your closing costs substantially.

Special Programs

Before choosing any mortgage, check out if you are eligible for any special programs that can reduce the overall cost of your house.  For instance, you or your partner served in the military, you can qualify for a veteran loan which has low or no down payment. Even better, if you fail to pay a few mortgage payments, there are protections in place with this type of loan.

In conclusion, getting a mortgage is a very important decision that has a huge impact on your financial freedom. Therefore, comparing offers from different lenders will allow you to make the best decision.

One of the best ways to compare mortgages is to use a mortgage broker. Their service is free to you and they have software that can electronically compare loans from up to 30 lenders:

Darwin NT Mortgage Comparison