What Affects Interest Rates?

There are many factors that affect and determine mortgage rates. Some factors, such as the economy, are out of your control. Other factors, such as your financial profile, may be more in your control.

Economic factors:

Supply and demand

The amount of money available to lend to borrowers determines supply and demand levels. Typically, when banks have more money to lend (more supply), interest rates may be lower. On the contrary, when banks have less supply, interest rates may be higher.


Inflation occurs when the price of goods and services rise, which in turn, decreases one’s purchasing power. Higher interest rates may compensate for the rising inflation levels.

The government

The U.S. Federal Reserve (the Fed) has a say in how interest rates are affected. The federal funds rate is the interest rate that banks charge one another for borrowing short-term funds. If the economy is slowing down, the Fed may lower interest rates to increase borrowing power. If the economy is growing too quickly, the Fed may raise interest rates to slow down borrowing.

Personal factors:

Credit score

Your credit score represents your “creditworthiness.” Lenders evaluate your credit score to determine your ability to meet your debt obligations. A high credit score may signify that you are more likely to repay your loan on time. More risk (a lower credit score) may produce a higher interest rate, and vice versa.

Down payment amount

As mentioned before, higher risk may be correlated with a higher interest rate. Therefore, you may get a lower interest rate with a higher down payment because there is less risk associated when you have more at stake in the property.

Overall, interest rates on mortgages may vary depending on economic factors and your financial health. It’s important to speak with your mortgage advisor in order to better understand what loan program is right for your financial needs.

At GuardHill, we have access to a variety of loan programs. Our goal is to find our clients the best loan program matched with the lowest possible interest rate.