External Factors

Economic Cycles

Economic cycles bring considerable influence on mortgage rates. During periods of economic expansion, consumers spend more money, increasing demand, which helps drive mortgage rates upwards. Periods of economic contraction reduce spending, lowers demand, pushing interest rates downwards.

Government Policy

As economic forces push mortgage rates up or down, federal policy-makers influence economic conditions to help limit inflation and stabilize economic growth.

Real Estate Industry

The real estate industry, such as house construction and property sales helps determine whether demand exists for homes. The higher the demand for homes, the higher the demand for mortgage borrowing. The increased demand for funds pushes mortgage rates upward and vice versa.

Inflation

Inflation is the increase in prices across the economy making consumption and investment more expensive. Inflation is a common side-effect of too much economic growth and devalues the spending power of currency.

Consumer Specific Factors

Type of property

Different mortgage rates apply for different types of properties. That is because different types of properties have different levels of risk in terms of their marketability.

Occupancy

Primary residence vs vacation home or investment property will be mortgaged at different rates. Lenders charge higher rates for an investment property than for a primary residence. In the lenders’ perspective, there is a higher risk associated with investment properties vs primary residences.

Size of Down Payment

When putting 20% or more down, borrowers are able to avoid Mortgage Insurance Premiums but will be charge a slightly higher interest rate. Here’s why; the federal government made several changes to mortgages guidelines in 2017 and now the lender (and their investors), are taking 100% of the risk associated with financing the 20% down payment borrowers.  For that reason, the borrower is charged a higher interest rate.

Credit Score

People who pay their bills on time and maintain low balances on revolving debt will usually have higher scores. A higher score helps a borrower qualify for a better mortgage rate.

References

https://www.sammamishmortgage.com/factors-that-can-determine-your-rate/

https://homeguides.sfgate.com/dictates-mortgage-rates-8831.html