Mortgage Rates Vs. The Stock Market

Your credit score, a reliable income and how much outstanding debt you owe are critical factors in determining the best mortgage interest rate that you’ll be offered.

Yet none of it has anything to do with the range of interest rates available. It’s a bit more complicated than that.

Although the Federal Reserve rate, bond markets, inflation and the demand for homes all play a big part, the stock market also plays a less direct role in determining interest rates.

The amount of money flowing and the direction it's flowing in does influence the mortgage market, including the ease of obtaining a no money down mortgage.

Stocks, Bonds, Mortgage Rates

Stock markets play a role in how much discretionary income investors have. When markets are going up, some investors feel more comfortable pulling money out of stocks to be used elsewhere, or selling high.

Many investors diversify their investments by moving money into bonds that are considered a safer investment with guaranteed rates of return.

The bond market has a significant influence on mortgage rates. Mortgage lenders create mortgage-backed securities by packaging groups of loans together. These are then sold to investors on bond markets.

The bond market is strongest when a lot of money is flowing in; this drives interest rates lower. When lenders are paying lower interest rates to bond buyers, lenders can offer lower interest rates to home buyers.

See Also: Will US Interest Rates Ever Drop Below Zero?

Economic Fears And The No Money Down Mortgage

Headlines and economic news influence both the stock market as well as mortgages. If you’re looking for a low cost or no money down mortgage, you can take clues from the stock market for the direction that mortgage rates can be expected to go.

While the two don’t move in perfect lockstep, they both do take clues from the economy — both good and bad.

This is another correlation between stock markets, bond markets and mortgage rates. Another time that money moves from stock markets to bond markets is when fear grips the economy. This is a better measure than money moving for diversification, but diversification is also closely linked to economic fears.

Fear drives more money into government-backed bonds than into mortgage-backed bonds.

Still, the bottom line is that when money flows into bonds, interest rates can be expected to go down.

So, bad headline news and bad economic news leads to lower interest rates because more money is available to borrow.

And we know that when more money is available for mortgages, a no money down mortgage becomes easier to obtain.

Relationship Between Stocks, Mortgages Not Always Positive

The Catch-22 is that mortgage interest rates can be expected to go down when economic news is bad.

Bad economic news comes in many forms but often leads to fewer jobs. In the case of tariff wars, it means higher costs for consumers. Neither of these is good for a home buyer trying to save for a down payment.

It's a double Catch-22 because mortgages also work on supply and demand. When fewer people are looking for mortgages, lenders tend to lower interest rates to attract home buyers.

Although there are fewer buyers shopping for mortgages, these homebuyers ultimately benefit from a low interest rate and/or a no money down mortgage.