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How Mortgage Rates Are Determined: A Snarky Explanation
Ever wanted to know what the hell's going on behind the curtains of mortgage rates? Let me tell you, folks, these numbers are a lot more than just simple interest. They're shaped by complicated algorithms and calculations that keep us all guessing and wondering.
First things first, it starts with what’s called 'Base Rate' or "Base" for short. This is the basic rate at which the lending institution charges an initial sum of money. It's like paying a flat fee to borrow from the bank; there are no hidden fees or interest rates attached to these initial sums. But guess what? Base Rate isn't fixed! It’s variable, which means it changes based on various economic factors, like inflation and unemployment rate. When the economy is tight (like it was in the '80s), base rates tend to be higher. When the economy is strong (think about 2016's housing market boom), they can dip lower. The second variable is "Mortgage Rate". This is the percentage of interest that you're actually paying on your loan. It’s based on a variety of factors, including interest rates on home loans, fees and charges, and any government-backed or guaranteed programs. Think of it as how much a friend or family member has to pay when they make an investment. And then there's "Applying Rate". This is the rate you actually have to pay each month
