As the stock market remains in a volatile state, many prospective home buyers wonder what affects Wall Street has on mortgage rates? This contemplation can cause anxiety for the new home buyer and it is essential for the prospective buyer to have an understanding of how the relationship between Wall Street and Mortgage Rates">mortgage rates work.
The interest rates of mortgages change in response to a variety of market indicators. Stock and bond fluctuation, the amount of investors currently trading, and the movement of vested funds are all key factors in interest rate change. These indicators paint a comprehensive picture of the current economic state, displaying high risk periods or periods of general economic well being. As a rule of thumb, a falling market will cause higher interest rates. Though this is common, it is not always the case.
In an effort to control inflation, the Fed will increase the discount rate at which banks and financial institutions can borrow. This is done in order to reduce the amount of money printed; therefore, causing the value of money to rise, increasing financial institution borrowing interest rates. As this filters down to the consumer, the interest rates for purchases such as home borrowing are increased to compensate.
These higher rates increase a consumer's monthly costs; in turn, businesses also suffer as the consumer has less money to buy products and services. When businesses lose money, the market can begin to fall because business value decreases, causing stock value to also decrease. In affect, mortgage rates rely heavily on market changes as they are an important indicator of economic health.
Concluding, as a home buyer or home owner looking to refinance, knowing an ideal time to lock your interest rate could be as simple as watching the stock market.