Pledging a property to acquire a loan is a mortgage loan. It is a long term loan where the buyer of a home pledges the real property to get credit from financial institutions. These loans must be repaid along with the interests. Usually the rate of interest depends on the size of the loan, repayment methods, maturity period and type of interest rates (flexible or variable). The mortgage loan is not only bought for buying a property, it is also used by the people for different purposes. Mortgage rates do not be the same all the time; one day it rises up and the next day it may fall down. This fluctuation is due to several reasons and there are various factors that wind up the mortgage rates.
Where ever the mortgage money come from? It is the banks that provide funds to the investors and other lending institutions. Hence the rate depends on the loose money and the out money market. When the deposits and funds are more, the banks can lend more money to the investors, which is loose money market that reduces the mortgage rates. On the other hand, when the depositors prefer other kind of investments and savings rather than banks, then it is a tight money market where the mortgage money becomes less, leading to higher rates.
Variation in economic, social and political factors resolve the mortgage rates. If the growth of the economy is high, people will be able to pay more, thereby affecting the interest rates. Government Intervention is one of the major reasons for variability.
Inflation: Inflation decreases the value of money. This will in turn increase the interest rates on longer term loans. The rate of interest decreases during deflation.
Loan type and period:
If the loan amount is less, then the mortgage rate is less; it is much higher for jumbo loans than the normal interest rates. Similarly, rates depend on the loan tenure periods. Mortgage loans are usually for 10 years to 30 years. More the number of repayment periods higher the interest rate.
This aspect is mainly for the business loans. The risk involved in the business decides the rates. The greater the risk, higher is the rate. The lending institutions look only for the creditworthiness of the receiver. If there is a good credit history, lower are the rates. When the repayment of the individual seems to be a risk, they charge more.
The stock market is another reason for fluctuations. When there is a hike in the stock market people prefer to invest in shares rather than any other investment. This may raise the loan rates.
The rates are charged based on the type of the property like home, business building, location and other purpose of the property. There are many other considerations like lending firm policies and restrictions, the value of property, loan amount, investors need, etc. Private institutions lend money at higher rates than the banks and credit unions to attain more profits. Decide either fixed or variable type of interest rate depending on the current economic and market situations to acquire a mortgage loan at lower rates.