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Mortgage Loans

Posted on Monday, November 7, 2022 in Mortgage Lending

Here’s How Mortgage Interest Rates Work

There’s a lot of news right now about mortgage rates. One of the common questions current homebuyers and prospective homebuyers are asking is “How are Mortgage Rates Determined?”

The answer is not as clear-cut as one might think from reading the media headlines. Mortgage rates are determined by many factors, some within your control and others are not.

When you’re shopping for a mortgage loan, the interest rate you’re given is one of your most important considerations. After all, it has a significant impact on how much you’ll be expected to pay each month.

Mortgage Rate Factors Within Your Control

The mortgage interest rate you are given could be very different based on multiple factors that relate to your financial well-being. In general, the greater the risk the lender sees in approving you for a mortgage loan, the higher your interest rate will be. Your interest rate is influenced by your:

  • Credit score
  • Income and employment history
  • Debts
  • Cash reserves and assets
  • Size of your down payment

Mortgage Loan Options

You will have options to choose from when selecting a mortgage loan product. Your mortgage lender at First National Bank will explain the pros and cons of each option based on your unique financial situation. Ultimately, your decision will impact your interest rate. Your loan type, amount and term all impact the interest rate offered.  

Mortgage Rate Factors Beyond Your Control 

Mortgage rates are also set by a variety of market forces, moving up and down daily, based on the current and expected rates of inflation, jobs forecast, other economic indicators, the secondary market, and the Federal Reserve. These market forces are beyond a homebuyer’s control.

  • Rate of Inflation. Rising inflation is often accompanied by rising interest rates because when prices go up, the dollar loses buying power. As inflation has accelerated in 2022, mortgage rates have risen.
  • Jobs Forecast. During periods of robust jobs growth, mortgage rates tend to increase. In comparison, when significant job loss is occurring, like during the COVID pandemic, rates fall.
  • Other Economic Indicators. Mortgage investors also pay attention to other economic indicators, including home sales (number of homes being sold and for how much they are selling for), new home building starts, stock prices, and corporate earnings.
  • Secondary Market. The secondary market is a marketplace where home loans and servicing rights are bought and sold between lenders and investors. Most people don’t know this, but the vast majority of mortgage loans in the U.S. are not owned by the lenders that issued them. Mortgages are typically sold to investors through entities like Fannie Mae, Freddie Mac or the FHA. They provide certain guarantees to investors which makes them safer and more attractive to investors. In addition, because of these guarantees, investors are willing to accept lower returns – which means lower mortgage rates for borrowers.
  • Federal Reserve. The Federal Reserve (Fed) does not set mortgage rates. The Fed cuts or raises short-term interest rates in reaction to inflation and overall economic indicators. Mortgage rates rise and fall according to these same economic forces. While mortgage rates and short-term interest rates move independently, they usually move in the same direction.


During uncertain economic times, worry less about the things you cannot control and place your energy toward addressing the factors within your control. Then, speak to a First National Bank mortgage lender to discuss your options and ways to get the loan that best fits you.  

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