Interest Rates

When one takes out a mortgage an interest rate is charged which one will pay over the period that the loan is returned. The mortgage interest rates are linked with the money market and vary depending on the money market. A person who is not into money markets or is not a financial analyst will fail to understand that why a mortgage interest rate is advertised as 6.34% or 5.76% and why not as 6.5% or 6%. The reason is that when a bank or a credit union or a mortgage company gives a mortgage the money is given to the borrower who in turn will give it to the seller and acquire the place of residence. Now the bank or credit union or the mortgage company may decide to keep the mortgage with them this is also called a portfolio or may decide to sell it. If they keep it then they earn the interest that they get on payments from the borrower every month. However if they sell the portfolio to a secondary buyer then they will get the money which they can give to other borrowers. Who are these buyers in the secondary market? They may be security companies, pension funds and insurance companies and in USA there are two government agencies Freddie Mac and Fannie May who form a part of the secondary market.

When the economy of a country is booming the interest rates will be high and when it is in a slump it will be low. Home mortgage interest rates and refinance home mortgage interest rates are dependent on the rates which are in the secondary market and these rates may change every week or even daily depending on the health of the economy. The average weekly interest rates are taken as an indicator. There are basically two types of interest rates that are of prime importance in the mortgage business and these are fixed rate mortgage and adjustable rate mortgage. The fixed rate on which a mortgage loan is taken will apply for the entire term of the mortgage and the adjustable rate mortgage will vary or change when it comes up for renewal.

Some mortgage companies advertise low interest rate mortgage loans and others best mortgage interest rates to get customers. However all mortgage interest rates are dependent on the economy and the amount of capital that there is in the mortgage business. Right now the mortgage business in USA is in a slump and some well known mortgage companies have had to closedown their business. A lot of loan officers who worked with mortgage companies are currently without jobs because of the severe down trend in the mortgage business. Freddie Mac which is a government backed agency declares the weekly rates and the current average mortgage interest rates are 6.31% for 30 years and 5.97% for 15 year mortgages. The current mortgage rates are high in the USA and not many home owners are going for second mortgages or cash out due to the high interest rates and it is only those people who are desperate for money who are taking out second mortgages or cash out. Everyone in USA is hoping that the economy will turn around and the interest rates will start to decline and the capital will flow back into the mortgage industry and bring down the interest rates.

There are a number of reasons for the climb in interest rates and some of them are the increase in the price of oil in the world markets and increase in overall prices and the decline in property values. Everyone in USA is waiting and hoping for the economy to turn around and stabilize and home mortgage interest rates to decline so that people will be able to afford taking a mortgage and repaying it without going into default or bankruptcy.