Like the stock market and the bond market,
the housing market has ups and downs. This means that in addition
to researching lenders and preparing for the loan application
process, you'll have to start paying attention to
interest rates.
Mortgage rates change constantly — rates can drop dramatically,
sometimes as soon as you begin repaying. Rates can also rise quickly,
even between the time you research your
mortgage
options and the
time you get your loan. While you can't always predict how or
when rates will change, it helps to understand what causes the
changes.
The Fed and interest rates
When the economy slows and
consumer
confidence
levels drop, mortgage rates tend to
fall. Conversely, mortgage rates typically rise when the economy
grows stronger, and people feel more comfortable borrowing and
spending money. One common misconception is that mortgage rates
mirror the
Federal
Reserve's
actions. Actually, a drop in mortgage
rates almost always reflects an economic slow-down before the
Fed lowers short-term interest rates.
But the two aren't entirely unrelated either.
One of the Fed's motives in lowering short-term rates is to increase
the amount of money lenders have available, which also helps keep
the mortgage rate low.
The other thing that's true about rates that
lenders advertise: They tend to be in the same ballpark. Lenders
make money on home loans, and they can't afford to charge rates
significantly higher than their closest competition. If they do,
they run the risk of pricing themselves out of the market.
Dwight
P. Robinson, Senior Vice President, Corporate Relations,
Freddie Mac
Dwight
P. Robinson, Senior Vice President, Corporate Relations, 
