The Stock Market & Mortgage Interest Rates
That is, there is no direct effect of stock markets on mortgage rates; however, monitoring the movements of stock markets can occasionally provide insight into other factors that may be influencing the increase or decrease of mortgage rates. Instead of monitoring the stock market to determine the future of your mortgage rates, you should focus on the 10-year yields of United States Treasury bonds. In an environment where interest rates are rising, the value of your existing bonds will decrease.
This increase in the fed funds rate may lead to an increase in mortgage rates, and rising mortgage rates may reduce demand for homebuying, resulting in lower housing prices. Or, mortgage rates may decline when inflation is stable and the Federal Reserve reduces the federal funds rate to stimulate the economy. In this scenario, an increase in the fed funds rate makes borrowing more expensive, as banks may also increase their lending rates.
Mortgage Rates and Bond Rates
Higher interest rates result in higher monthly mortgage payments, making it more difficult for many individuals to purchase a home. The majority of mortgage lenders maintain interest rates that are slightly higher than bond rates, as these tend to attract investors. In a dynamic free market, government, and privately-backed lenders, compete for the business of homebuyers, driving the average monthly mortgage rate up or down.
Homeowners who wish to take advantage of their home’s equity without having to replace their existing, lower-interest mortgage with a cash-out refinance may benefit from home equity loans. While the Federal Reserve raised its benchmark interest rate by a quarter of a percentage point on Wednesday, this does not necessarily mean that mortgage rates will follow suit, as the housing market has likely already factored in the anticipated increase. For more information, reach out to us.