Mortgage rates tend to fluctuate for a variety of reasons including inflation, the rise and fall of the markets, the value of the dollar and the amount of people interested in purchasing homes. Low mortgage rates encourage people to purchase homes because they can get a loan with a low interest payment. This means that the money repaid goes more toward paying off the original balance rather than being taken up in interest. Current mortgage rates are considered to be low at an average of 4.5% for a 30-year fixed rate mortgage.
How Mortgage Rates Affect the Economy
A stable mortgage rate encourages home purchases. When more people buy homes, the economy improves. When mortgage rates increase, home purchases decrease. When mortgage rates go down, more people purchase homes. This cycle plays a role in determining how well the economy works and how optimistic people are about spending their money. If people don’t want to purchase a home because mortgage rates are too high, the value of homes will go down in response. While this is good news for a buyer, it is bad news for a seller, who will lose money based on the home’s worth. This, too, will affect the economy as people who make less on the sale of their home will spend less in the market, decreasing demand for products. The cycle continues into many areas of the economy.
Stabilization Vs. Flux
Having a house sit empty costs money for the seller. In terms of financial institutions and even the government, an empty home can cost money to maintain, so it is a better move to make homes more affordable through stabilizing low mortgage rates.
Although slight fluctuations in mortgage rates may not seem like a big deal, over the life of the loan they can actually cost thousands of extra dollars for the borrower. Some housing markets are more affected by stable or fluctuating mortgage rates than others. In areas where homes are generally affordable, increasing or decreasing mortgage rates by a few tenths of a percent won’t affect the loan amount too much. However, where homes are more expensive, the increases mean more money paid in interest, rather than on paying down the principle.
Although mortgage rates are considered to be low right now, around 4.5% of a total loan amount, they may also go as high as 5.5% and still be considered low as very small fluctuations are common and are still considered to be stable. The loan amount will help determine how much interest the buyer feels is affordable. Some of these fluctuations may also depend on the lender in addition to the economic trends, and even the time of year.