Eli5 Why are they saying mortgage interest rates are at 7%? Wouldn’t your interest rate be based on your credit score like a car loan?
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The federal reserve (your bank’s bank, who sets monetary policy for the United States) sets interest rates that banks can borrow money at. In order for banks to make money they mark up that rate and pocket the difference. The worse your credit score the higher the mark up because you represent a higher risk. When people discuss what the current mortgage rate is they are talking about the rate for someone with excellent credit, which is based on the rate set by the fed, with a few points of mark up.
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