Interest rates are impacted by a borrower’s credit score, loan term, mortgage program and a series of market factors that are outside of the lender’s control.
Mortgage rates are determined by Mortgage Backed Securities (MBS). MBS is a bond that trades on the wall street every day. If the demand for MBS is more, the price goes up, and mortgage rates go down. If the demand is less, then the inverse happens and the rates go up.
The price of MBS gets determined by many factors but most important is the macro economic news. Better economic news, means good news for the stock market and bad news for bonds. Bottom line- better economic news is bad for mortgage rates.
It’s a common misconception that Fed sets the mortgage rates. While Fed’s policies may have an overall impact on rates, it doesn’t control the day to day changes in mortgage rates.
What is the difference between interest rate and APR?
The APR is designed to represent the “true cost of a loan” to the borrower, expressed in the form of a yearly rate to prevent lenders from “hiding” fees and up-front costs behind low advertised rates.
The terms annual percentage of rate (APR) and nominal APR describe the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage, credit card, etc. It is a finance charge expressed as an annual rate.