How Bonds Affect Mortgage Rates

May 29, 2024

4-minute read

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There are a few personal factors that influence how much you’ll pay in interest on your mortgage loan. Your down payment, credit score and loan type all affect your final interest rate. However, there are also many hidden factors that influence market interest rates as a whole.

One of those factors is the bond market. Let’s examine how bond rates influence mortgage rates and which types of mortgage rates are influenced by the bond market.

The Relationship Between Bonds And Mortgage Rates

Bond prices and mortgage interest rates have an inverse relationship with one another. That means that when bonds are more expensive, mortgage rates are lower.

The reverse is also true – when bonds are less expensive, mortgage interest rates are higher.

At first glance, this might seem like an illogical correlation. When interest rates are higher, more people will want to buy bonds – why don’t higher interest rates push bond prices up?

To understand, let’s look at the supply and demand of the secondary bond market.

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