Mortgage rates rise and fall for a variety of reasons. Market sentiment, the latest headlines and a roster of economic indicators all play a role.
This week’s must-watch economic news comes Wednesday, when the Federal Reserve Open Markets Committee wraps up its September meeting. Fed Chairman Jerome Powell is scheduled to speak to reporters.
In recent months, the Fed has discussed a “taper” of its pandemic-inspired economic stimulus should the economic recovery continue to gain steam. The Fed has been buying $120 billion in Treasury bonds and mortgage-backed securities every month, but a taper would mean slowing the pace of those purchases. All that bond-buying has helped to keep mortgage rates low.
Another variable is inflation. While inflation had topped 5 percent in recent months, price increases seemed to calm in the most recent official report. “The lower-than-expected inflation reading allows the Fed to defer any tapering decision beyond the Sept. 22 meeting and take time in gauging the impact of the Delta variant on the economic recovery,” says Greg McBride, Bankrate’s chief financial analyst.
The Fed doesn’t directly control mortgage rates, and the calculus behind how much you pay for a home loan is complicated. But here’s one easy rule of thumb: The 30-year fixed-rate mortgage closely tracks the 10-year Treasury yield. When that rate goes up, the popular 30-year fixed rate mortgage tends to do the same.
Rates for fixed mortgages are influenced by other factors, such as supply and demand. When mortgage lenders have too much business, they raise rates to decrease demand. When business is light, they tend to cut rates to attract more customers.
Rates ultimately are set by the investors who buy your loan. Most U.S. mortgages are packaged as securities and resold to investors. Your lender offers you an interest rate that investors on the secondary market are willing to pay.