Which of these events would most likely lead to a rise in interest rates for home mortgages?
A.
The prices of homes for sale in a certain city rise by a great deal.
B.
Many new lenders begin offering home mortgages.
C.
Home sales increase greatly for several months in a row.
D.
The average time needed to sell a house doubles.
A. The prices of homes for sale in a certain city rise by a great deal.
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B. Many new lenders begin offering home mortgages.
Why? When the supply of mortgage loans increases, interest rates on these loans usually go up too. The reason for this, is that as the supply of the loans increases, loans' value decreases and it becomes increasingly difficult to get investors to invest on that particular loan (which is how loan originators make their money). In a word, a higher supply means that a lender will get less for the loan when the lender sells and thus the price of lending (interest rate) you that money will be higher.