Understanding Interest & Mortgages Rates

Cause and Effect of Interest Rates
Interest rates on home mortgages are important because mortgage interest is a major item in many people’s budgets. Even small changes in mortgage interest rates can have a large impact on how affordable it is to own a home. And since homeownership is the main way many families accumulate wealth, affordable rates are important.
 

Interest Rates and Supply and Demand
The prices of interest rate futures, like those for other future contracts, react to fundamental factors of supply and demand. In this instance, price levels of interest rate futures are affected by the supply of, as well as the demand for credit.

How Credit is Affected
Credit, in turn, is affected by economic forces in several areas, among them: Federal Reserve Board monetary policy, legislative and executive fiscal policies, business activity and inflationary expectations.

Generally, interest rate futures will rise in price amid signs of a slowing economy since a sluggish economy reduces credit demand. On the other hand, a strong economy generally lowers future prices since increased credit demand tends to force interest rates higher.

Economic Indicators
Numerous economic indicators are closely watched by users of the financial futures markets. Outlined below are several of the more closely watched indicators, as well as what generally happens once the developments are announced.