How oil prices can affect mortgage rates

In most cases, buying a home typically means getting a mortgage. Residential home loans are comprised of a few key determinants: the amount, the loan period and the interest rate. Each of these influence how much monthly payments will be.

The buyer has control over how much he or she wants to borrow, as well as the timeframe during which he or she wants to pay the loan back. However, the interest rate is mostly out of the buyer’s control and depends on various things. Many people know some of these aspects, such as credit score, the loan type and where the home is located. But there are other, less obvious factors that can affect your mortgage rate, such as the price of oil.

Oil and inflation
Recently, domestic oil prices have fallen to incredible lows. During the first few months of 2016, oil prices plummeted to below $30 per gallon, the lowest it has gone in years, Fortune reported. Even as prices rebounded back to above $30 in the third week of February, they are nearly $20 lower than in the second month of 2015 and more than $70 less than those of February 2014, according to data from Macrotrends.

“Oil prices plummeted to below $30 per gallon in early 2016.”

These figures tie into mortgage rates because oil prices can have an effect on inflation, according to an Economic Synopsis essay from the Federal Reserve Bank of St. Louis. While inflation is generally regarded as somewhat difficult to predict, they noted that financial market inflation generally fluctuates when there are changes in oil prices. Mortgage rates are then affected because they are largely dependent on the prices of mortgage-backed securities. Inflation rates impact these prices, as well as the amount paid to those who invest in mortgage-backed securities, The Mortgage Reports explained.

When oil prices go down as they have been, inflation could follow suit. When inflation is down, so are the values of mortgage-backed securities, which results in lower mortgage interest rates.

Mortgage rates can be affected by oil prices.Low oil prices can lead to lower mortgage rates.

For much of 2015, inflation never reached 1 percent, and now it is recorded at 1.4 percent,, according to U.S. Inflation Calculator. The Federal Reserve hopes to see inflation increase to 2 percent in the coming year by gradually increasing interest rates, as it did for the first time in about a decade at the end of 2015.

To learn about the mortgage rates available to you, talk to the experts at Lenox/WesLend Financial or call 844-225-3669. As heard on the radio, it’s the biggest no-brainer in the history of mankind.