Also, when the Fed decreases their rates, we tend to spend more. Because loans are more inexpensive, people are more likely to use them to invest in capital. Also, because interest rates are low, savings accounts are reduced because they are not as valuable. This creates a surplus of money in the marketplace which lowers the value of the dollar and eventually becomes inflation. With inflation, mortgage rates increase so the Fed must carefully monitor their rate to ensure that our economy remains level. First, the Federal Reserve determines a rate called the Federal Funds Rate. The Federal Reserve Bank requires that lenders maintain a percentage of deposits on hand each night. This is called the reserve requirement. Banks will borrow from each other to meet their reserve requirements. When the Federal Funds Rate is high, banks are able to borrow less money and the money they do lend is at a higher rate. When low, banks are more likely to borrow from each other to maintain their reserve requirement. Keep in mind that lenders may calculate APR differently and APR also assumes you will hold the loan for its full amortization so it is still important to carefully compare and consider when selecting a loan.To put it simply, the mortgage rate is the rate of interest charged on a mortgage. In other words, it is the cost involved in borrowing money for your loan. Think of it as the base cost. Mortgage rates differ from the annual percentage rate (APR). The mortgage rate describes the loan interest only, while APR includes any other costs or fees charged by the lender. There is no way around credit inquiries when applying for a mortgage. Because credit score is an important determinant that demonstrates a lender's risk, the fact is your credit will be pulled. And, furthermore, the system used to determine that score covers credit inquiries of all different types and taking a hit for line of credit requests just makes sense, whether we like it or not.