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There are many specific factors that affect mortgage interest rates, but there is one main principle driving the direction of rates – supply and demand. When there is more demand for mortgage loans, lenders raise the price (the interest rate) on their loans. They can do this because they have many consumers competing for mortgage credit, who are willing to pay higher rates in order to refinance or buy a house. However, when there are few mortgage applicants looking for home loan credit, rates will be lower in order to entice more borrowers into the market.
By extension, mortgage rate trends are also affected by the conditions of the national economy. This is why rates fluctuate weekly, daily, and even hourly with the release of each new economic indicator. If growth is slow and unemployment is high, rates will be lower as a slumped economy is likely to keep people out of the housing market. On the flip side, if the economy is booming, interest rates will generally move higher. Some of the most important rate-influencing indicators to watch for are federal funds rate changes from the Federal Reserve, the growth rate of the gross domestic product (GDP), national unemployment figures, inflation trends, consumer spending indices, oil prices, and housing starts.
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