What Affects Houston Mortgage Rates?

A report from PrimeLending lists 2011 Houston mortgage rates as the lowest since 1971. The figure, according to Freddie Mac, shows that though the current mortgage rates in Houston are somewhat higher, as recently as 2012, mortgage interest rates were near historical lows. This shows how widely mortgage rates can vary. However, it doesn’t explain what affects Houston mortgage rates.

We’ve compiled a few economic, political and social factors that shape Houston mortgage rates to help you spot trends and obtain the best mortgage rates in Houston.

1. Mortgage-Backed Securities

According to PrimeLending, local mortgage rates are affected when mortgages are sold through mortgage-backed securities or packages of mortgages to investors on the open market. The price of the mortgage-backed security will in turn affect individual mortgages.

2. Prepayment Speeds

According to RP Funding, prepayment speeds also impact Houston mortgage rates. A prepayment speed is how early mortgages are paid off. Houston mortgage rates are based on the complete cost of refinancing, which includes applicable state taxes and title fees. The greater the total cost, the lower the interest rate borrowers will have.

3. Service-Released Premiums

Zillow explains that banks put a premium on every loan called a service-released premium. This premium varies according to past performance of Houston loans, from market to market and state to state. The better the performance of past Houston mortgages, the better current Houston mortgage rates will be.

4. Employment Rate

According to Trulia, the employment level in the surrounding market dictates current Houston mortgage rates. When the economy is robust and more people are employed, more people are spending money. With more money circulating, interest rates will increase. Conversely, with less money changing hands, interest rates will decrease.

5. The Economy

As the local economy does better, interest rates increase. If the economy is performing poorly, interest rates are likely to decrease because banks have lower costs to lend out money.

6. Inflation

When there is more money in the economy, inflation is more likely. Because inflation reduces the purchasing power of a dollar, banks will ask for more money back on the loan amount because the same amount of money will be worth less in the future. If deflation occurs, money gains purchasing power and interest rates are likely to decrease.

Whether you are looking for a house now or later, understanding how Houston mortgage rates function will serve you well.