Home Mortgage Interest Rates React to Economic Fear
The global economic picture in 2008 has not been a rosy one. In fact, home prices are plummeting, product sales are dropping, and the threat of inflation looms on the horizon. So how does this affect home mortgage interest rates, if at all?
Fear is not only a driving force for home mortgage interest rates, but the general economy as a whole. A major portion of an interest rate offered to a potential home loan borrower is what’s term a mortgage spread premium. This spread accounts for the lender profit margin and is made up of many factors, a large one being risk. Since fear is derived from risk, the mortgage spread will normally increase when there is an adequate amount of fear in the economy, causing rates to rise.
