The factors that affect the growth and amount of mortgage rates are extremely compound, and lead many people to suppositions that are not correct. As someone who does business with mortgage brokers and has through a lot of in-depth investigation on this matter, I am stunned to see the various wild theories affecting mortgage rates. Surprisingly some mortgage brokers create mistaken assumptions too.

Here, I give standard justifications on how mortgage rates are actually dictated, and put down the allegory that they are set straight by the Federal Reserve.

Mortgage rates are supported by one fact: the mortgage backed securities marketplace. This activity is possessed by the banks and the mortgage dealers. These entities arrange their mortgage loans as one and trade it as investments titled mortgage backed securities (MBS). These MBS are eventually sold by investors as bonds, and the fee of these bonds is directly opposite with mortgage rates. That is, the higher the fee of mortgage hardbound securities, the smaller mortgage rates set off.

The amount of dealing in these MBS is the only real reason that manipulates mortgage rates. Similar to any bonds prices, mortgage backed security growth is affected by concerns around the economy, trading, and aspects that investors consider regarding long-term business prospects in the U.S.

This takes us to the primary myth regarding mortgage rates–that they are directed by the Federal Reserve. This is just not factual. The Federal Reserve has a modest effect on mortgage rates that is indirectly and slow. The fed can at times indirectly influence mortgage rates by declaring alteration to interest rates. Changes in interest rates manipulate rates on home loans, interest rates on credit cards, money market industry, and on certificates of deposits. In part, when interest rates are adjusted by feds, investors trade money markets and CDs to exchange cash to bonds and stocks. Mortgage backed securities are a kind of bond too. The extra MBS investors acquire, the higher the value of the bonds goes. As a result mortgage rates get low.

The rules above deal especially to long-term mortgage rates, specified as fixed 30 year mortgage rates. Mortgages of short terms, like 5 year ARMs and also 7 year ARMs, are moved by many factors and do not necessarily grow with the aforesaid rules.

Jeff Deutsch studies and writes about personal finance matters and contributes to NjJumboMortgages.com. To read about New Jersey jumbo mortgage and jumbo mortgage rates NJ please click the preceding links.