Home Mortgage Rates
Home Mortgage Rates > Federal Funds Rate • About Us
Broadly, there are two types of home mortgages: fixed rate mortgages and
variable rate mortgages (often called adjustable rate mortgages).
A fixed rate mortgage has an interest rate that is fixed for the entire
duration of the loan (most commonly 30 years) while a variable rate loan
has an interest rate that changes. Variable rate loans are better
known as ARMs (adjustable rate mortgages); the most common ARMs have
interest rates that are fixed for a period of time and variable thereafter.
In both cases, it is ultimately the decision of the mortgage lender what interest rate to charge on the loan. Of course, lenders that want to stay in business have to charge competitive interest rates that are on par with what other lenders are charging.
Home mortgage rates tend to fluctuate with the economy. When the Federal Reserve Board wishes to stimulate the economy and increase employment, it reduces the discount rate at which banks can borrow money from the Federal Reserve Bank; when the Fed is concerned about inflation, it raises the interest rate for bank borrowing. The discount rate indirectly affects the federal funds rate at which banks borrow money from each other. When banks can borrow at low rates, mortgage rates also tend to be low; when money is tight and banks themselves are paying high interest rates to the Fed, home mortgage rates also tend to be high.
Long-term inflationary expectations also affect home mortgage rates. When the federal government runs large deficits, it tends to result in higher inflation, so long term mortgage rates are likely to rise also.
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