It Is Important to Realize There Are Multiple Interest Rate on the Market

Financial institutions find it somewhat amusing that consumers by and large believe there to be a single established interest rate for mortgages. Lenders relay that when persons into to apply for a loan they often ask, “What is the present mortgage rate?” And the best answer we can provide to that question is that there is no one rate; rather several different ones at any given point in time.

In essence, how mortgage rates work is that range of mortgage interest rates will vary depending upon the lending institution offering the loan. Hence, based upon the mortgage being considered, its principal amount and associated terms, the rate of interest can better be determined. In fact, it is even possible that the interest rate presented may even shift from individual to individual. This inconsistency occurs for two primary reasons: 1) predatory lending practices are being employed and 2) lenders tend to entice their pet customers with prime interest rates.

What is predatory lending?
This term refers to unethical practices being employed by lending institutions that believe they can get away with offering higher interest rates to customers who may otherwise not know better or have limited options due to, poor credit or background checks, in terms of outlets from which they may obtain a loan.

An illegal practice, predatory lending, is often difficult to monitor as financial institutions are frequently able to cite specific reasons as to why one customer was offered a lower rate as opposed to another offered a higher one.

Both state and federal agencies are working on tracking down lenders whom employ such measures as they believe it poses an unfair disadvantage to groups of certain minorities, races, classes, age demographics and educational barriers. Yet, it is still quite difficult to prove that they are intentionally assessing higher rates to those with otherwise similar backgrounds seeking identical plans.

What does Prime Mortgage Rate mean?
Commonly referred to as the Wall Street Journal (WSJ) Prime Rate because the leading financial newspaper queries the leading thirty domestic financial institutions and, then after determining the average of these figures, publishes their findings proclaiming it to be the current “prime rate.”

The WSJ is the most widely used measure of prime rate. Prime Rate is basically the interest rate at which the largest banks are willing to lend money to their favorite customers.

This figure is then employed by financial institutions as a means of establishing a rate at which they can charge customers interested in obtaining mortgage or other types of loans. How does an increase in the Prime Rate translate to the consumer? When there is an increase in the Prime Rate, often financial institutions may alter their adjustable rate mortgages to the same degree. Hence, should the prime rate increase by two percent; then you can reasonably expect the adjustable rate mortgage to also go up by the same amount.

Does the lender set the Mortgage Rate being offered?
Not entirely, the lender only has so much discretion in terms of the rate he | she can offer to consumers. Yet, within his control is the amount he | she chooses to add on as an additional profit to be made off the transaction.

Years ago, the Federal Government held a much tighter reign on the processes of approving mortgages and, subsequent, determination of interest rates. Many of these former activities were centered upon regulation of the industry in an effort to ensure those who applied for a mortgage were not taken advantage of by the lender. Today much discussion exists between whether it is up to the state or federal government to presently monitor such practices.

Currently, there exists a small grouping of mortgage companies which constitute the major players in the mortgage industry. Such companies, viewed upon as investors, purchase mortgages from lenders in attempt to dominate the industry, as a whole.

In turn, due to the tight reign the mortgage investors have over the marketplace, it is actually the investor who exerts the majority of the power with respect to establishing the presiding mortgage rates.

With a favorable and growing economy, investors have the power to protract increased interest rates from the lending institutions, who, in turn, need then transfer these fess over onto the consumer in the form of increased interest rates on their mortgages. The investor feels this is the necessary action to take because of anticipatory views that, during such periods, the Federal Reserve during may be planning a rate increase which will in effect will create a downturn in the economy.

Or if experts offer negative projections for the economy, investors may begin hording bonds in fear that the Federal Reserve will lower interest rates in an effort to stimulate spending. Thus, with increased demand from investors, lenders, in response, can present lower rates to their customers.

In short, the precarious nature of the mortgage industry necessitates that the consumer be savvy and well-educated. Hence, it is suggested that one in the market for he best mortgage rate monitor the ups and downs of the economy in order to ascertain what a fair rate should be.