Factors affecting mortgage interest rates Essay

Factors affecting mortgage interest rates - Essay Example As far as the business world is concerned, people have ventured into many different ways of acquiring capital as well as property. They have gone as far as borrowing money from financing institutions as loans which they commit their real property as security. Mortgage financing institutions as a capital market has since.Mortgage is money borrowed as loan from mortgage institutions to finance real property acquisition. It is usually paid back in specified periods, installments and interest rates. There are several factors that affect these mortgage interest rates in any given transaction and they vary from one financial institution to another. Us government debt is whereby the government raises funds from the public through issuing of debt instruments to finance its projects and debts. Treasury bill rates are defined as a short-term debt instrument of one year or less issued by the government to raise money from the public. After the maturity period, the government will pay back to th e bill holder by selling him or her at a discount as matter of fact when the treasury bill interest rate increase, the mortgage interest also increases because the debt instrument encourages buying more security for the benefit of the prevailing rates. Money in circulation will hence reduce due to its demand and so fewer funds are available to facilitate property acquisition, this therefore forces the financial institution to raise mortgage interest as they are in high demand.... reases the public will invest more on the debt instrument and consequentially the mortgage interest rates increases since there will be high demand for funds for property purchasing Treasury bonds are long term debt instrument issued by the government to the public. They are issued to a period of 30 years with interest being paid quarterly to the bondholder. If the interest rate is low the public will be mean to invest on them and hence mortgage interest rate due to the fact that demand for money to finance mortgage is low. Factors arising from Federal Reserve board. Federal reserve board is a government run board to oversee the banking system in US. Federal fund rates affect the mortgage interest rate. These are rate charged on loans that are given by depository institutions overnight These interest rates lead to increase in mortgage interest rates in that for example if a depository institution lends money to another, it has to charge a certain interest. Then the receiving institution has to raise its interest rates when lending money to the public so as to offset the interest charged by the other financial institution. To effect this, the New York foundation development governs all these transactions. Federal discount rates are interest rates charged to commercial banks as well as other depository institutions for money they receive from other financial institutions operating within the Federal Reserve. These rates are usually above the prevailing market interest rates. The mortgage financial institutions, which in this case are the commercia banks, and the depository institutions will have to increase the interest rates to their clients due to the fact that they have to recover the Federal