By financen | April 5, 2010 - 3:23 pm - Posted in Mortgage

It’s a tricky job to make any predictions on the mortgage rates. The financial markets that set the share prices and the interest rates have gone completely chaotic in mathematical sense. The calculations on the basis of which the mortgage rates are determined have self referential components.

Predicting mortgage rates is just like predicting weather forecasts. No one can be accurate in calculating mortgage rates for the future. There is always a greater margin of error in the prediction.

Mortgage rates rises due to inflation: The interest rates are calculated in response to supply and demand in the financial market. They are independent of inflation. The bank will charge you the nominal interest rate for your mortgage and this will add on the annualized percentage rate of inflation.

Mortgage rates rise also due to the reduced availability of credit: The financial markets operate on supply and demand in the market. If the supply is limited, then people who have more money or those who have purchasing power will pay for that item. Mortgage rate predictions are based on the supply of money whether it is increasing or decreasing and likewise, the trends in the demand for money.

Mortgage rates also rise due to increased risks: Mortgage rates are also influenced by investment decisions, i.e. risks involved. Mortgage rates will depend on the overall risks involved in the housing market. If the house value decreases, then the risks with the banks will suddenly rise and the predictions in the mortgage rates will go up.

Mortgage rates fall down due to government intervention: The US government plays a very powerful role in the financial market. The government can influence the overall market for money by issuing Treasury bonds at different interest rates and thus, it will affect the real interest rate.