Bounty: how do mortgage rates work?
I am trying to understand why mortgage rates are so expensive in the US and more broadly what goes into the mortgage rate in the end.
While the FED Funds rate is around 2% and long- and short-term bonds are around 2% as well, I don’t understand why a bank has to make mortgages around 4%, or twice as high.
So I am looking for the mechanics of how morgate rates are determined by banks.
If you can explain to me how this works or provide a link that properly explains this you will earn the bounty.
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Only 4%? Banks can do whatever they like, same if it comes to tax.
It different by bank and country and also greed 😁. An opportunity for the financial institution to milk you dry for giving you a house or something.
The treasury bill and some other higher power factor also comes to play.
Interesting question. The FED fund rate is the rate charged between bank to bank lending whereas the mortgage rate is an agreement between bank and citizen. This would lead me to believe that banks give each other better rates than individual citizens.
The FED fund also determines their lending rate every 45 days or so, so % moves more actively than the housing mortgage rate.
Because banks usually have much more collateral they are likely privy to lower rates than indivdual consumers, this would be my best guess, but I must admit it is a guess. Investopedia has good articles for anything to do with money, I'll link one on how the FED rate works. Hope this helps
https://www.investopedia.com/terms/f/federalfundsrate.asp
Thank you so much. I have a lot of guesses too, but this is about understanding the actual mechanics.
Risk vs reward. What's yout credit score, income and job stability like? This link explains https://www.discover.com/online-banking/banking-topics/how-the-federal-reserve-affects-mortgage-rates/
People foreclose, bond always pay, hence higher rate than bond.
That does not explain 2x difference. Imho or why the difference in other countries is much smaller
other countries still make 3-4% extra compared to thr saving rate. In US, rates are so low that operating margin seems higher in % but not in $ amount.
I don't think this is accurate. I think US is one of the highest interest rates of all the western countries .
But I am not here to argue about that. Just wan't to understand how these rates come about.
I found this link that talks about Fannie Mae and Freddie Mac and how these secondary markets effect the prices that banks charge.
https://www.bankrate.com/finance/mortgages/how-lenders-set-rates.aspx
I feel this is more the perspective of the end consumer, I am more worried about the economic mechanics
Sorry mate I can only help with mortgages in the UK to be honest mortgage advisors are normally cost effective hope you get sorted
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I think this is an unfair robbery. The state should protect individuals and reduce credit rates for their well-being. Every citizen should have a home in which he can sleep safely.
Mortgages are a new development in Ghana and I don't really understand them as at now
@knircky, I don't know the all Mechanism but in my opinion Banks push people towards the Debt Trap.
Sure, but that is a different story and not relevant here.
That's true, just wanted to speak my mind. Enjoy your time ahead.
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