What Impacts Mortgage Rates?

It’s the middle of summer and the market remains strong. Interest rates have been holding in the low 4s and, as you know, the strong seller’s market continues.

The Federal Reserve has increased the Prime Rate (Fed Funds Rate +3%) 4 times in the last year and a half. These have been the first changes to the Prime Rate that we have seen in nearly ten years so it can naturally lead to a lot of confusion. I often get calls from clients looking to buy a home concerned of how these changes will impact mortgage rates and their purchasing power.

While it may seem logical that increasing the Prime Rate will cause mortgage interest rates to be higher, there isn’t necessarily a direct correlation. Below outlines the impact from changes to the Prime Rate and the major causes of mortgage rate fluctuations.

  • Changes to the Prime Rate impact:
  • Credit cards
  • Student loan debt
  • Rates for home equity lines of credit
  • Mortgage interest rates are impacted by:
  • Inflation
  • Economic growth
  • The Bond Market

While economic growth has been strong recently with second-quarter GDP up 2.6%, inflation has remained low and US Treasury rates are higher than overseas treasuries causing money to flow into our bond market. This all has led to 30-year mortgage rates holding around 4%.