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Beginners' guide to mortgages - MoneyWeek investment tutorials
The rise and fall of mortgage interest rates have become erratic during the past 20 years. As a rule of thumb, mortgage interest rates go up when the economy is strong and stock prices rise. On the other hand, if economy weakens, mortgage interest rates go down. In today's market, the mortgage interest rates are much lower than they were in the mid-1980s to the 90s. But at the end of five or seven years, a large amount of the balloon payment mortgage is due. To explain further on this, let's say you have a balloon payment mortgage with an interest rate of 7.5%. After seven years, an approximate 92% of the original balloon payment mortgage amount is due. For example, the amount of the balloon payment mortgage is $200,000. Here's how it works. Other mortgages require a person to make a down payment when buying a home. As years go on, they use their income to pay back the money they borrowed in making the purchase. This decreases their debt and increases the value of their home. With a reverse mortgage, everything works in the reverse. It's just that rates might just be a little bit too high to give any room for savings or rates are not low enough to make mortgage refinancing worthwhile. Mortgage refinancing may also turn sour for buyers with good credit. Private mortgage insurance (PMI) and long loan terms can make mortgage refinancing a bad deal. To attract investors, sellers of bank rate mortgages and bonds in these capital markets compete with one another. This is done by providing their consumers with a variety of products, such as bonds and bank rate mortgage. These bank rate mortgage products have varying levels of risks and gains over given periods of time. This is the reason why sometimes, mortgage rates move differently from other rates. For instance, a lender has a commitment to make and is forced to close additional mortgages. To achieve this, they would have to lower down the mortgage rates even with interest rates going up. Other Factors Affecting Mortgage Rates Mortgage rates are affected by several other factors besides inflation.
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