Mortgage Rates News

Why are mortgage interest rates rising with such bad news about the economy?

Public Comments

1. Because with so many people declaring bankruptcy the mortgage companies have to raise rates to cover their losses.
2. mortgage interest is rising because the problem of usa started from mortgage. people were defaulting so they had to increase revenue to offset some failure from the others.
3. The above answers are BEYOND STUPID because, based on their logic, NEW lenders who do not have loses to recoup can enter the market and clean up. They can underprice existing lenders and drive out the old players. The basic piece of knowledge that they are missing is that interest rates for a loan with given characteristics are a COMMODITY! The interest rate (lets call it r) on a given loan has three or more components: r = risk free real interest rate + inflation premium + credit risk premium. Other components may include premia for prepayment risk, interest rate risk, foreign exchange risk, sovereign risk, and the list can go on. When the economy takes a turn for the worse, the ability of borrowers, on average, is impaired. To compensate for this increased credit risk, lenders increase the credit risk premium, which in turn causes a one-for-one increase in the interest rate r.