Mortgage Rates Predictions
Sunday, July 27th, 2008 Subscribe To Our Feed
Even the experts’ home mortgage rate forecast can be like long range weather predictions - it is impossible to be precisely accurate with the mortgage interest rates predictions, and the further in advance you try to predict mortgage interest rates, the greater the margin of error in the prediction.
Factors Which Make Mortgage Interest Rate Predictions Rise: Inflation
So called “real interest rates” are calculated assuming that inflation is zero. To get from the “real interest rate” to the “nominal interest rate”, which is what your bank will charge you for your mortgage, you add on the annualised percentage rate of inflation, so mortgage rates predictions will increase as inflation increases.
Factors Which Make Mortgage Interest Rate Predictions Rise: Reduced Availability Of Credit
Financial markets operate on supply and demand. If there is a limited supply of anything, then it will go to those who are willing or able to pay more for it. The same is true of mortgage money.
Mortgage lenders generally borrow the money they lend for mortgages, or at least 90% of it. Because of their size and financial stability, they can get a lower interest rate than an individual home owner, and the difference between what they pay for the money they borrow, and the nominal interest rate they charge you, is the bank’s profit on your mortgage. Mortgage rates predictions will take into account whether the supply of money is increasing or decreasing, and likewise, the trends in demand for money.
Factors Which Make Mortgage Interest Rate Predictions Rise: Increased Risk
Apart from the underlying real interest rate determined by the broader economy, the rate of inflation, and the supply of money available for mortgage lending, there is another factor which comes into play in any investment decision - risk. Mortgage rates in general will depend on the overall risk involved in the housing market.
In terms of mortgage rates predictions, the key factor is the likelihood of default by home owners, and the bank’s chance of getting their money back if a default occurs. The underlying driver of this likelihood is the LVR, or loan to value ratio. This is the average mortgage balance divided by the average house value.
If house values plummet, as they have in some parts of the US, then the default risk for the banks suddenly increases, which means that they will be wanting to charge higher mortgage interest rates; predictions will take this upward pressure into account.
Factors Which Make Mortgage Interest Rate Predictions Fall: Government Intervention
The US Government is an 800-pound gorilla in the financial markets. By issuing Treasury bonds at different interest rates, the government can influence the overall market for money, and thus affect the “real” interest rate. Mortgage rates predictions will consider Federal actions in the markets.
Mortgage rates predictions are more complicated than weather predictions, because political factors influence mortgage rates predictions. This doesn’t make accurate mortgage rates predictions impossible, of course, but it requires more than just a mathematical model to make accurate mortgage rates predictions - it takes a good poitical “nose” as well! When the time comes, you can find good mortgage rates forecast at the Emergency Refinancing web site.
Technorati Tags: No Tags
Related Tags: No Tags
Possible Related Posts
