Mortgages and Mortgage Rates

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A loan taken out to finance a home and which is made up of many components such as collateral, principal, interest, taxes and insurance is called mortgage.  The mortgage components are described in the following context – the collateral of the mortgage is the house itself, the principal refers to the original amount of the loan, taxes and insurance are part computation and requirement in applying for a mortgage and are computed according to the location of the home and the interest charged is known as the mortgage rate.

In most cases, it is the lender that determines the interest rates in the home mortgage and how the lender determines this may be taken from benchmark factors that can affect his/her lending business, so he/she can either give a fix rate which stays for the term of the mortgage or a variable rate that would be influenced by the market or bank rates.  But for the most part, mortgage rates are variable depending on the rise and fall of interest rates floating in the homebuyers’ market.

The most influencing indicator for the rise and fall of mortgage rates is the 10-year Treasury bond yield, such that any indication for the yield to rise and drop, so, too, with mortgage rates, respectively.  It has been observed that even if the time frame for mortgages are computed for 30 years, most mortgages are already paid in 10 years time or the mortgage goes through a refinancing for a new rate.  With that observation, the 10-year Treasury bond yield becomes a safe, standard indicator.  Another form of indicator would be the current state of economy, such that if the economy is bad, the investors will usually turn to bonds to secure their money and with this situation, the bond yield drops.  Therefore, a bad economy results into a drop of the bond yield, consequently, affecting the mortgage rates to drop, which in turn attracts more borrowers.  On the other hand, if the economy is booming, investors seek for investment opportunities resulting into a rise of the bond yield and allowing mortgage rates to increase. To understand more about mortgage, check out https://en.wikipedia.org/wiki/Category:Mortgage.

There will always be a level degree of risk which a lender assumes when he/she issues a mortgage since it would be possible that the client may default his/her loan.  With a risk of a default possibility, the higher the risk factor will effect into a higher mortgage rate, in which case, this will help ensure the lender to recover the principal amount in a faster period, thereby protecting the lender’s investment.  When a borrower has a good financial history, he/she has the capacity to repay his/her debts and this situation can be considered also as a factor to determine the mortgage rate.  In which case, the lender can lower the mortgage rate since the risk of default is lower.  With the above indicators and determining factors, borrowers must look for the best mortgage rates.

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