Mortgage Loan Applications: How the Economy Impacts You

Richard Parker  |

One of the main considerations in applying for a mortgage is the interest rate. It impacts the mortgage affordability over a specific payment period. While borrowers ideally want the lowest interest rate possible, mortgage lenders need to factor in the risk involved with offering rates that are either too high or too low. If you are a mortgage borrower for the first time, for example, favourable interest rates are available if you have stellar finances. But in addition to a borrower's credit history, there are bigger factors that impact mortgage interest rates available in the market. Therefore, it is very important to compare mortgage lenders in order to find the one that is offering the best terms and rates to suit your requirements.

Indicators of Economic Growth

When you talk about economic growth, the primary indicators include employment rate and gross domestic product. When these levels are high, people have more money to spend; hence, are likely to consider taking out a mortgage to buy a home. A growing economy is always a positive thing, but it also leads to an increase in mortgage demand which will also raise interest rates. Lenders have a limit to the amount of money they can lend to borrowers. By increasing interest rates, they are matching the demand with the available supply.


What inflation essentially means is the value of money over time. When inflation is high, prices naturally go up, and money also decreases in value. Mortgage lenders carefully monitor inflation rates and match interest rates accordingly so that they can still get a reasonable net profit out of the transaction. Naturally, if the inflation rate is high, you can also expect mortgage rates to be higher. Conversely, if inflation rates are low, you can expect mortgage rates to be lower.

Current Housing Market Conditions

The current condition of the housing market also impacts mortgage rates. For example, if there is a downward trend for homeownership and people prefer to rent, fewer houses will be built, pushing interest rates down. Once again, this boils down to the law of supply and demand. If the market conditions point to higher demand for housing, developers will build more houses and mortgage lenders will also adjust interest rates accordingly.

Federal Reserve Policies

The Federal Reserve is not responsible for dictating interest rates offered by mortgage lenders, but their policies significantly impact whether rates go up or go down. When the Federal Reserve increases the money supply, it will push interest rates down. On the other hand, tightening or reducing the money supply will have the opposite effect.


It is simple enough to understand how economic factors affect mortgage interest rates. The basic supply and demand law will help you understand why interest rates are the way they are. It helps to know these things because as a consumer, you need to have a guide for making financial decisions. A mortgage is a significant financial commitment. If you know how to observe the market behavior, it is easier for you to know when the best time to apply for a mortgage or mortgage refinance is based on these economic indicators.


The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:



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