Why Do Mortgage Rates Fluctuate?

Have you ever wondered why mortgage rates change from time to time? You check one day and get one rate and check the next and get a slightly different rate. Mortgage companies and borrowers are subject to potential daily and even hourly shifts in the market. Mortgage rates fluctuate on the simple principal of supply and demand. So why does this happen?

Interest Rates

Interest rates have a dramatic impact on mortgage rates. The higher the interest rate on a home loan, the higher the monthly payments will be. This is why it’s important for home buyers to be certain that their mortgage broker is working with them to receive the lowest interest rate possible on their loan.
In addition, adjustable interest rates can have a devastating effect on one’s mortgage payments. While the interest rate and monthly payments may initially be low, once the interest rate begins to increase, the monthly payments will as well. This can leave homeowners overwhelmed and unable to make their monthly mortgage payments.

Inflation

A major factor that influences mortgage interest rates is inflation. A higher inflation rates is often related to a growing economy. When the economy grows, the Federal Reserve increases the interest rates to slow down the economy and reduce inflation. Inflation is seen during an upward price change of goods and services. In a strong economy, there is higher demand for them, so producers of the goods and services people want, can raise prices. A stronger economy therefore results in increased mortgage rates.

Changes in Treasury Bonds

In order for the nation to pay its debt, the U.S. federal government will sell notes called treasury bonds. They will sell these in an auction style, thus the going rates of treasury bonds largely depend on supply and demand. Treasury bonds are a popular investment choice since the U.S. Government guarantees it. On the downside, the returns of this type of investment are also very low.

Treasury bonds directly affect mortgage rates since investors usually invest their money in a fixed rate treasury bond, and lend you money on a slightly higher rate. The investor’s profit comes from the difference between treasury bond rates and the interest rate they’re giving to you. If the treasury bond rates are higher, they offer you a higher mortgage rate and vice versa.

Economic Conditions

Even in the worst of times, the federal government is still highly unlikely to even consider defaulting on its loans. However, when the economy is in a depression, individuals are at a much greater risk to lose a job and not be able to repay their mortgage. As a result, the mortgage rates will rise much more than the price of other securities because the risk involved in a mortgage has increased.

In addition, interest rates are what controls money flow in the economy. Higher interest rates may curb inflation, but they also slow the economy. Lower interest rates tend to stimulate the economy, but could eventually lead to inflation. There is a delicate balance between decreasing interest rates to stimulate the economy and increasing them to prevent inflation.

There are a number of factors that go into mortgage rates. Each of them plays their own part in the raising or lowering of the rates. Watching, as an informed consumer, and acting at a time when the rates are lowest, is the best way to make a good, informed decision.

Investing During Tough Economic Times

The recent economic issues our country has faced have left many scratching their heads about whether or not investing their money is the right thing to do. Or, should it just be buried away somewhere until the financial storm blows over?

Here are a few things to consider when investing during hard economic times. And, you will note that there are still ways to invest smartly, just remember research and a thorough understanding of what you are getting yourself into is now more important than ever.

A Look at the Past for Hope in the Future

It is easy to get so focused on what is happening today with the economy and forget many of the financial storms the US economy has weathered, even in the last 100 years.

For a review, here is what our economy has pulled through and become much stronger as a result in the last 100 years:

• Great Depression of the 1930’s
• World War I & World War II
• Rapid inflation of the 1980’s

Despite all of these incredible challenges of the 20th century, the standard of living dramatically increased for Americans during this same time span. Also, the DOW Jones Industrial, the most widely followed stock market index in the world, rose from 66 to 11,497 during this same time span. It was actually during the tough economic times the great fortunes were made.

Recessions Provide a Time to Invest Inexpensively

Many experts say a recession can be the best time possible to begin investing because asset prices are at rock bottom lows. You can buy stocks, bonds, mutual funds, real estate, or other types of investments for pennies on the dollar from what you could just a few years back. Many investors are forced to dump their assets. This allows you, the new investor, to pick up some great deals you might not be able to afford during normal economic times.

As with any type of investing, this takes courage. Many times your portfolio will fall even lower after the investment is made. To avoid a financial disaster, experts recommend you go into the market through a “dollar cost averaging,” a technique designed to reduce market risk, and not put all of your money in at once.

Build a Healthy Overall Portfolio

It is more important than ever to build a strong overall portfolio to maximize your gains and minimize your risks. This can take years and should be done with ample research.

Although volumes could be written about this, to get your portfolio as healthy and diverse as possible you should follow these basic steps:

• Contribute the maximum amount to your employer’s 401k
• Pay off (or greatly reduce ) your high interest debts
• Fund a ROTH IRA

• Buy a home
• Build a 6 month emergency fund
• Pursue several investment options (stocks, bonds, mutual funds, CDs, etc)
• Invest in yourself (education, develop skills, start a new business)
• Save for your child’s education.

Stay the Course

Ask any boat captain and they will tell you they’ve had to weather many a storm. The best they can do is just to head in the direction they want to go and wait for the storm to die down. The same is true when it comes to investing. When you have a plan in place, follow it.

If you already have a plan in place for your investments from several years back, continue to follow it. Wealth is not built in a day. If you are just now beginning to invest, don’t let any financial woes our country is experiencing deter you from your goals. Start with a good plan in place and know the great economic times of the past will eventually return and we will be financially stronger as a result of the hard times.

Study the Habits of the Rich

Habits make up 90% of what we do every day. It only makes sense that good habits lead to good things and bad habits lead to less than desirable outcomes. The habits the wealthy establish in their financial practices not only help them acquire wealth, but also allow them to keep the wealth they have. They have a few habits in common that keep them in the upper elite when it comes to money.

Habit #1: Pay Yourself First & Save/Invest The Money

Those who have a considerable amount of money know they are the reason they have the money in the first place. As a result, they make sure they are taken care of in the long run so they can continue to earn more money.

It may seem there is never quite enough money to allot some for yourself. However, by taking money out first and investing it in a place where it can earn passive income for you (in the form of interest, real estate, or whatever else you choose), you are ultimately making more money for yourself for years to come. The best strategy is to take 10% off the top of your earnings and reinvest it into something that allows the money to grow even more.

Saving money is not as much about accumulating a large amount of money quickly, it is more about getting into the habit of saving money and watching it build over time.

Habit #2: Become Frugal

We often associate the term “frugal” with people who deny themselves anything and everything to save money. This doesn’t have to be the case, though. Those who are smart with their frugality simply cut costs in areas that aren’t as important as other areas.

For example, maybe buying the name brand of every food product is not as important to you as taking an annual family vacation. Therefore, you should buy the cheaper brands of food so you can spend your money on something that’s really important to you: the family vacation.

Frugality is a matter of prioritizing your expenses. Analyze each expense and make sure you are spending your hard earned money on the things that are truly important and help you reach your long term goals.

Habit #3: Look After Your Business

Recognize your business is the way you make money. Treat it with respect. Even if you don’t like your job, you should recognize the fact it pays your bills and allows you to save for the future.

Make sure you have a vision for where you want your business to go. This gives you the momentum to move further along to your ultimate goals. Having these anticipated milestones gives you a target to aim for and reminds you of exactly what you are doing with your business each day.

Habit #4: Take Educated Risks

Making money can be a risky business, but the wealthy recognize the risk factors that are involved to achieve their financial objectives. The difference between someone who is just a risk taker and someone who takes educated risks is the ability to recognize opportunities that have an upside potential that far outweighs the potential loss.

Learning to take educated risks comes as a result of studying situations closely and then having confidence in your ability to judge correctly. Do as much research as possible to understand the exact risks, as well as the large potential for payoff. Then take the risk.

Habit #5: Give Back

One great thing about money is the ability to help others with it. In addition, giving back follows the principle: the more you give, the more you receive. How is this possible? Most believe the more we give away the less we have. Instead, giving back creates a bit of a paradoxical effect.

Wealthy businessman Junior Murchison once said, “Money is like manure, if you spread it around it does a lot of good. But if you pile it up in one place, it stinks.” Giving money away creates a bit of good karma. It also reminds your subconscious there is enough money for everything. A poverty mindset seeks to hold on to every bit of money possible, a wealthy mindset seeks to give it away and reap those unique rewards.

Habit #6: Invest in Yourself

Millionaires make investments on themselves. Why? They recognize the fact that by making themselves better they increase their potential for income. They often seek out opportunities to learn and grow as a human and as a businessman.

When you are open to learning new information in this rapidly changing economy, you understand someone is doing things better than you. This leaves plenty of room for growth. This can also be applied in your network of peers. If you see someone who does something better than you, ask them to teach you. The potential of this investment is multiplied many times over.

While the wealthy may not “have it all figured out,” we can learn a considerable amount simply by studying the habits they use when it comes to their money. By utilizing these habits in our own life, we can also potentially find a path to great financial wealth.