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Mortgage rates are set by the Federal Reserve after doing an analysis of prevailing economic conditions, and may decide that low mortgage rates will stimulate the economy by making it less expensive for consumers to get a loan. The monetary value of the national currency compared to others in world financial markets will also influence interest rates.
If the home mortgage loan rate is lowered, it will ideally increase the amount of people buying a home. The benchmark is set by 30 year fixed rate home loans, with 15 year fixed rates and adjustable rate mortgages being set slightly lower.
Sometimes setting low mortgage rates will not have the desired effect, such as when prevailing economic conditions have been unfavorable for some time, causing widespread unemployment. Even at a lower home mortgage loan rate, people who are able to will be reluctant to buy a home if their local or regional economic situation remains uncertain. A large number of foreclosed homes on the market will also weaken demand for homes, even with low mortgage rates.
|Jennifer Mathes, Ph.D.|