Does CPI affect mortgage interest rates?
#3
Mortgage rates are affected by long-term bond rates just as BigPimp says. Banks use the long-term index rate of a 5 or 10 yr. bond rate plus a spread to come up with their mortgage rates. Why? Because banks don't typically hold long-term mortgage notes in their portfolio as assets. They will sell these mortgages to companies such as Fannie Mae, Freddie Mac, Dovenmuhl, etc. These companies raise money by floating bonds to purchase these mortgages from banks. Investors in these bonds are guaranteed a certain rate of return for their investment. The difference between the rate guaranteed to investors and the full mortgatge rate amount is income to the mortgage company.
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