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How are interest rates determined?


Our interns throw darts at a board, and that's how we choose interest rates. Just kidding. We'd never ask our interns to do that.

In reality, interest rates change every day – even by the hour. They're always fluctuating.

It's inflation, retail inventory, consumer activity, employment and the corresponding Federal Reserve decision to change the Federal Funds Rate based on those factors that ultimately go into creating what interest you pay on your mortgage loan. With a healthier economy more money becomes available, pressure on inflation increases and rates, generally, go up.

The Federal Funds Rate is what banks charge each other to loan money. That translates to other lending transactions, such as credit cards, auto loans and mortgages.

The Federal Reserve can change the rate up to eight times a year at Federal Open Market Committee meetings. When rates change, the Fed buys or sells government treasury bonds to change the level of money available to the financial markets and the public. And the result for mortgages is a constantly changing table of base interest rates.

Your individual rate is determined by adjustments to the base rate based on your specific loan characteristics including credit score, loan purpose, occupancy type, loan-to-value, any discount points purchased and more.