How the Home Mortgage Refinance Rate is Affected by the Slow Economy

The prevailing home mortgage refinance rate in the marketplace is subject to many different factors. During a slow economy, the rate will undoubtedly be affected. If you are in the market to refinance, then the interest rate that you receive is of great importance. You will want to know how much the rate is in the marketplace before you start shopping. Therefore, understanding what happens to the rate during a slow economic period is essential. Here are a few things that affect the mortgage refinance rate.

Slow Business

The first thing that happens during a slow economy is that people start to hold on to their money. They tighten up the purse strings and budget more. While this might seem to help them individually, it hurts the economy as a whole. The media starts reporting about the economic downturn and people start to spend even less out of fear. This has a domino effect and hinders nearly every part of industry. When this happens, it also affects the banking and mortgage sector. At first, the mortgage lenders have a slow period with more people opting to do nothing. Then when times start to get bad, people lose their jobs. As a result, they will be looking for other ways to come up with money. The equity in their house is too tempting to pass up and they start to apply for home equity loans. During this period, an unusually high number of people are looking for loans. This means the mortgage industry has to take a stronger look at each applicant.

Federal Reserve

Once the country is in a slow economy, the Federal Reserve will step in and try to help. They realize that when times are tough, they have to make credit more easily available to get things back on track. When credit dries up, so does the economy. Therefore, they have to get people out and borrowing money again in order to get things moving again. The biggest way that they can make a difference is by lowering the interest rate at which they loan money to banks. When they lower the rate, it lowers the costs that banks have to pay. They in turn will be able to offer lower interest for their refinance loans. This entices more homeowners to apply for mortgage refinances and creates a stir in the marketplace.

Individual Lenders

Each individual lender also plays a role in determining the home mortgage refinance rate. Each company has their own lending standards and minimums that they need in order to run a profitable business. The larger companies that operate on a national basis have economies of scale. They can often offer lower interest rates than other lenders. Shopping around also has a tendency to get you a lower rate. If one lender is offering something enticing, other lenders will sometimes match their offer. Regardless of how you look at it, it's much easier to find a lower interest rate during a slow economy.