Current Mortgage Rates: Richmond, VA
2.750% (2.807% APR) 30yrs
2.125% (2.130% APR) 15yrs
as of 09/23/21
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Mortgage Blog

Why Do Interest Rates Change?

Why do mortgage rates change web

If you are shopping for a mortgage you may notice that interest rates can change almost daily. Although mortgage rates are typically between 3.0% and 5.0%, they may fluctuate between these two figures daily.

Learning how and why interest rates are set can help you to choose the best time to start the homebuying process and help you to prepare for the costs of your mortgage loan. And if you already have a mortgage, watching interest rates could help you to find the best time to refinance your home.

Why do rates change?

Interest rates fluctuate based on the Federal Reserve Monetary Policy, market movements and inflation, and the state of the economy. Anything that ordinarily affects bank rates and stocks could affect current mortgage rates.

Changes to interest rates can affect our spending as consumers, and sometimes will be manipulated to help different marketplaces, including the house market. There are two trends that are affected by the change in interest rates:

  • When interest rates are low mortgage costs are reduced, meaning that more buyers will be active. This can increase the price of homes and help to stimulate the real estate market.
  • When interest rates are high, the cost of homes may be reduced and to compensate for the lack of active buyers. This can affect homebuyers and sellers, which hurts the real estate market.

What do rate changes mean for homebuyers?

When you are shopping for a home, it means that you’ve put in the time and effort the prepare for a major purchase. Likely, you’ve worked hard to save money over time, worked on your credit score, and made a plan for what kind of loan you would like to have.

There will always be information that you can’t anticipate, and one of those factors is the change in mortgage rates over time. Luckily, fluctuation will typically only affect your payments over time. This means that your timeline for buying a home can be maintained.

How will rates affect cost?

A fluctuation in interest rates will only affect the monthly payment of a mortgage and the amount paid over time in interest. Closing costs and down payments are not affected by interest rates. In some cases, a larger down payment may allow you to have a lower interest rate, and your mortgage lender will be able to discuss these options with you.

Should you shop around for lower rates?

Fluctuations in interest rates can occur at any time. If you are shopping for a mortgage lender in the same market, it is likely that rate fluctuation will not vary significantly if you are providing the same information. However, some lenders may have more options available than others, and can lock in better rates for their clients.

That being said, mortgage lenders may provide different rates based on your borrowing profile and risk. Your borrowing profile is made up by credit score, down payment, and debt to income ratio. A risk-based pricing model may be used to determine what interest rate a borrower would qualify for.

Should you refinance when rates are low?

When you refinance a mortgage, your rate will be based on your borrower profile, as well as current interest rates and the type of loan you choose. It’s important to understand what the difference in mortgage rates will be and how that could affect your refinance. Typically, the reasons for refinancing is to make a major purchase or to change your monthly payments, or adjust based on an increase in income or higher credit score. These factors will also affect your borrower profile. Make sure that the interest rate of your new mortgage will correspond with your refinancing goals and will allow you to complete payments.

Want to know more about refinancing? Learn more here!

Making your rate choice

When shopping for a mortgage, it’s important to consider how interest rates will affect your buying decision, monthly payments, and the lifetime cost of your home. Remember that some mortgage lenders will allow you to “lock in” an interest rate on some loans when you begin the pre-approval process, and that can take the pressure off of closing quickly. You can also bank on interest rates being lower on Mondays because there’s less news released on the stock market. If you’re interested in learning more about interest rates and your mortgage options, contact RatePro Mortgage today!

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