Low Interest Mortgage Loans

by Anita Vasquez

Mortgage interest rates are mostly determined by two things: the free market and the Fed. That’s pretty common knowledge, but people seeking low interest mortgage loans should be educated about how interest rates can fluctuate in order to time their home closing or their refinance as well as possible. Getting this right could make a difference of tens of thousands of dollars in interest payments over a 30 year period.

So how does the Fed push rates around? It can get pretty complicated, but the Fed is in charge of the federal funds rate. Now, the federal funds rate is the interest rate banks can charge each other if they’re lending money to each other overnight to stay within their federally required cash reserves. The Fed determines that rate, and the banks use it to set rates on the money they lend you and me for things like mortgages, cars, and credit cards. Basically, when the Fed lowers the Federal Funds rate by, say, .75%, there will be an equal drop in things like the Prime interest rate, around which many loan rates is built.

So why does the Fed lower the Federal Funds rate. There are a lot of reasons, but the one mostly commonly seen lately is that the economy is slow, and the government tries to stimulate it so banks will start lending to each other, to prospective home owners, business owners, etc. The idea being that more money will start moving through the economy, which improves the attitude of the public and gets things going in the right direction.

So for those of you looking  to get a mortgage loan with a low interest rate, you should keep track of the financial news – when people start to get scared about the economy, and the Fed wants to improve the outlook, low rates are probably on their way.

Now just because rates are low doesn’t mean you’ll get a low rate yourself. Everything I just talked about takes for granted the fact that you’ll have to be a well-qualified applicant to land a low interest mortgage loan. That means a credit score creeping over 700, having your other debt payments as low as possible (so as not to tip your debt to income ratio past allowed limits), verifiable income, and last but not least – a nice big down payment.

Getting the lowest possible interest rate mortgage loan is a matter of good preparation and good timing. You can’t do much to control the market, but you can control yourself. I heard a great quote once: “Opportunity meets you at the level of your own preparation.” If you’re prepared, you’ll be ready to capitalize.

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