How Do You Deal With The Interest Rates That
Come With A Refinancing Mortgage?
Author: Rony Walker

Your lender is trying to convince you that you need to apply
for a refinancing mortgage so that you can transfer to a fixed
interest mortgage rate. According to your lender, you have to
take this action if you wish to be free from the capricious
shifts of the market rates. But how is your mortgage affected by
the economy?

Determinants of Interest Rates

As with everything in the market, your mortgage interest rates
are determined by the interaction of supply and demand. When
borrowing is up and the economy is strong, interest rates
increase. When borrowing is down and the economy is soft,
interest rates decrease.

But it's not only the market forces that are setting the stage.
There is also the Federal Reserve. Whatever the Feds do and
wherever they set the fed funds play a crucial role.

The Federal Funds Rate

Now what is a federal funds rate? Also called the fed funds
rate, this is the interest rate that is charged whenever banks
lend funds to other banks. The rate's maturity lasts for only
two years or less, which makes it the short-term type. The
behavior of the federal funds rate affects short-term interest
mortgage rates.

As simple economic laws would have it, when short-term rates
decrease, borrowing and spending are likely to increase. The
result is inflation and the Federal Reserve tries to avoid this.


As for long-term interest rates, these are rates that last for
ten years or more in terms of maturity. Short-term rates
influence them indirectly. They typically rise when attempts to
assuage inflation come into play. When inflation is increasing
to undesirable heights, the Fed tries to remedy the situation by
increasing short-term mortgage interest rates. People whose
finances are gravely affected by market movements of interest
rates are forced to consider alternatives.

Heed Your Lender's Advice and Grab that Refinancing Mortgage

Your lender may be right after all. Maybe you do need that
refinancing mortgage. All these talks about mortgage rates are
Greek to you and the last thing you need is to have to watch
over them if only to keep up with your refinancing mortgage
payments. Maybe that adjustable mortgage rate you're in right
now is just not cut for you.

The Difference Between an Adjustable Interest Mortgage Rate and
a Fixed Interest Mortgage Rate

By the way, do you already know what an adjustable interest
rate is? How does it differ from a fixed interest mortgage rate?
An adjustable rate is the type of interest rate that is subject
to the changes in the market. This means that you may suddenly
find yourself dealing with an unexpectedly high interest rate
because of changes in the economy.

A fixed interest rate, on the other hand, is the type that is
unchanged by the market trend. It remains the same no matter
what shifts occur in the economy. It is more stable and more
predictable.

Go on ahead and heed your lender's advice. Grab that
refinancing mortgage while the offer's still up.


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