Factors Affecting Mortgage Interest Rates - Assignment Example

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This assignment describes factors affecting mortgage interest rates. This paper outlines the notion of mortgage, factors arising from the Federal Reserve Board, factors arising from US government debt, factors arising from government-backed security, factors arising from consumer derivatives and factors arising from government programs…
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Factors Affecting Mortgage Interest Rates
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Download file to see previous pages Us government debt is whereby the government raises funds from the public through issuing debt instruments to finance its projects and debts. Treasury bill rates are defined as a short-term debt instrument of one year or less issued by the government to raise money from the public. After the maturity period, the government will pay back to the bill holder by selling him or her at a discount as a matter of fact when the treasury bill interest rate increase, the mortgage interest also increases because the debt instrument encourages buying more security for the benefit of the prevailing rates. Money in circulation will hence reduce due to its demand and so fewer funds are available to facilitate property acquisition, this, therefore, forces the financial institution to raise mortgage interest as they are in high demand.
Treasury notes contribute to interest trends, as these are the intermediaries’ debt instruments issued by the government to the public in a view of raising money. It exists in the denomination of 2years, 5years and 10 years. This dealt is done by the Bureau of public debt. The treasury note bearer interest payment, which is paid semi-annually before the end of the maturity period. If the interest rates are increases the public will invest more on the debt instrument and consequentially the mortgage interest rates increases since there will be high demand for funds for property purchasing Treasury bonds are long term debt instrument issued by the government to the public. They are issued to a period of 30 years with interest being paid quarterly to the bondholder. If the interest rate is low the public will be mean to invest in them and hence mortgage interest rate due to the fact that demand for money to finance mortgage is low.
Federal reserve board is a government-run board to oversee the banking system in the US. Federal fund rates affect the mortgage interest rate. ...Download file to see next pagesRead More
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