11 May 2022

What 4 Factors Influence Changes in Interest Rates?

Factors that Influence Interest Rates

As a borrower, it helps to understand what goes on behind the scenes regarding interest rates. For the most part, well-qualified borrowers will receive the best interest rates. Mortgage House clients also receive competitive rates even though they have blemishes on their credit reports or cannot provide full financial documentation. Nonetheless, other factors outside the borrower’s control also impact them.

Money Supply. Some governments print more money as a way to help the economy. However, too much money and not enough collateral can cause the currency to lose its value. Therefore, the money supply flowing in the market can influence interest rates.

Government Borrowing. Even though the government collects taxes, it can still lack funds for services and projects. Therefore, they borrow to pay their bills. The government borrows at low rates. However, it impacts the public as the government debt leads to inflation.

Inflation. Inflation occurs when prices go up and the currency loses its purchasing power. If the population carries too much debt, it also contributes to inflation. In many cases, they borrow beyond their means and put themselves in potential trouble to repay it.

Central Planning. The Reserve Bank of Australia studies the economy’s activities. If they believe that the economy has started overheating or running sluggishly, they’ll alter the cash rate to spark favourable economic activity. 

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Factors that Influence Interest Rates Conclusion

To obtain the best interest rates, Mortgage House lending specialists encourage homebuyers to prepare their finances before applying. You can also start the process by contacting our team today.

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