How Mortgage Rates Are Determined
Many borrowers confuse the connection between the prime rate, the discount rate and the rate a bank will charge for mortgage loans. For the most part, mortgage refinance rates are linked to the rate the Federal Reserve sets for money borrowed from one bank and used by another.
This rate takes into account many factors. The rate issued by the Federal Reserve is determined after a meeting in which a variety of issues are addressed. One of the Federal Reserve’s biggest responsibilities is to control the inflation rate of the country.
Of late, the Federal Reserve is attempting to encourage lending. The Federal Reserve rate is at historically low levels and has been for some time. The impact of these low rates is that the mortgage rates have dipped well below 5 percent. This appealing interest rate was designed to keep mortgage rates low and inspire buyers to purchase homes. Current real estate markets are extremely favorable. The prices of homes are down, the mortgage rates are low and the supply of product is high. All in all, it is a good time to buy homes.
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