How Your Interest Rates Are Determined

Interest Rate

Are you looking for a reasonable mortgage interest rate?
Read on to learn the most common factors that will determine your rates, and why.

Federal Policy

Banks set interest rates based first on Federal policies. The Fed is in control of keeping our economy in balance, which means they have the power to move loan interest either higher or lower as necessary. Short-term interest rates are impacted more directly by changes in Federal policies than long-term rates.


Inflation has been known to impact an economy and, therefore, can directly influence a mortgage payment. As inflation rises, so do interest rates. This is where the Federal Government comes in to play, providing stability and resetting the economic system.

Supply and Demand

As demand for money and credit goes up, interest rates also rise. On the other hand, as demand decreases, it will cause interest rates to drop. Therefore, it may not be easy to find an affordable interest rate if lenders are seeing a high demand for credit. Be on the lookout for these signs regarding supply and demand as you search for manageable interest rates.

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