There are a variety of factors that affect mortgage rates. Mortgage rates are tied to the fed rate, but they are also affected by supply and demand. At a time that home sales are high, mortgage rates may creep up, while sluggish home sales may prompt financial institutions to cut mortgage rates. Because the majority of people who will purchase a home will take on a mortgage, mortgage rates have a great deal of influence over home sales. The widespread affect that mortgage rates have on the economy means that everyone, from the consumer to the president of the United States, has an interest in them. While it would seem that low mortgage rates are always better, economic principles also come into play. The complicated combination of federal rates, lending institutions competing for customers, credit scores and adjustable versus fixed rate mortgages combine to make mortgage rates sometimes complicated to understand.

Mortgage rates affect the sale of homes in a variety of ways. On the most basic level, lower mortgage rates increase the amount of home a person can buy for the same monthly payment. With lower interest rates, the prospective home buyer can purchase a more expensive home. There is, however, a converse reaction. When mortgage rates are low, and homes are selling quickly, it becomes a seller’s market. This means that the price of homes may creep up, effectively cancelling out the benefit of the lower mortgage rate. As the price of homes increase, there may be less competition among buyers, and, interest rates may drop. This cycle can play out over and over, and attempting to time your loan application to the low point in a cycle is not realistic. Many lenders, however, will allow you to lock in a low rate, but agree to convert your loan application if rates lower before you close on your home.