About Personal Finances

Welcome back!

Many are called to make mortgage interest rates predictions; few are chosen to get it right. Mortgage interest rates are determined by a wide range of factors, many of which are dependent on the whims of a small number of human beings in government and the big banks.

Factors Which Make Mortgage Rates 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 Rates 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.

For the full story on factors influencing interest rate predictions, visit Mortgage Interest Rates Predictions.