Interest rates for a mortgage are not as simple as you might think. There are ways to impact your interest rate such as a good credit score, money for a down payment or a shorter loan term. However, there are factors that depend on the current market and are simply out of your control.  When a loan is fixed, or doesn’t adjust, for 15 – 30 years, a lot of factors are considered and priced into the interest rate. Some factors that may impact your rates include inflation, the Federal Reserve and the value of Mortgage Backed Securities.


Inflation has a large but somewhat predictable impact on mortgage interest rates. Banks have to price in the interest rate for inflation so they can make money over the life of the loan. When inflation is rising, so are mortgage rates. If the value of the dollar is lower, it decreases the buying power of the dollar. Rates then go up to compensate for that difference. Inflation has been low for the last decade and has caused mortgage rates to be historically low. In times that the inflation rate is lower, you will typically see interest rates lower.

The Federal Reserve

The second thing to remember is that the Federal Reserve does not set mortgage rates. The Federal Reserve, commonly referred to as “The Fed” raises and cuts short-term treasury rates based on changes in the economy. These rates impact the rate indexes used by some to price credit card interest rates, some car loans and lines of credit. Mortgage rates are also generally impacted by the economic market and the Fed’s fiscal policy.

Mortgage-Backed Securities

Mortgage-Backed Securities are also a factor in determining mortgage interest rates. Mortgage-Backed Securities are a bundle of loans grouped together and sold from the bank that originated them. Banks sell loans for a profit and use that money to make new loans. Once the loans are sold, investors buy and sell them on the open market. What investors are willing to pay for these Mortgage-Backed Securities impacts mortgage rates. When a lot of Mortgage-Backed Securities are purchased, mortgage interest rates are typically lower. When demand is lower due to other investment opportunities, mortgage interest rates may rise.

Understanding how these three factors can help you better understand mortgage interest rates and the home buying process. The more knowledge you have about the mortgage process, available loan options and your individual qualifications, the more satisfying your homebuying experience will be. Connect with a local RCB Bank lender to get answers to your lending questions. Give us a call or visit our online Mortgage Center.

Opinions expressed above are the personal opinions of Alex Penny and meant for generic illustration purposes only. Qualifications and other restrictions apply for loans with approved credit. RCB Bank is an Equal Housing Lender and member FDIC. RCB Bank NMLS #798151. Alex Penny NMLS #1535836.