The amount of interest you pay for a home loan will have a big impact on the amount of money you can borrow.  With the interest rate changing daily, it's very easy to save thousands by simply getting your mortgage at the right time. This may cause you to wonder why interest rates fall, and figure out when is the best time to buy a home.  Here are a couple of factors why interest rates drop for home loans.

Market Factors

Many factors related to home loan interest rates are out of your control.

Struggling Economy

Some people wrongfully assume that home mortgage rates fall when there is an economic boom.  This is not true since it is more likely for home mortgage rates to fall when there is a struggling economy.  The reason it is like this is to encourage people to buy a home. Make the interest rate low enough that purchasing a home is enticing.

Post-Bubble Burst

If there has recently been a real estate bubble that has burst, people tend to have less faith in the real estate market and not want to buy.  Lenders will respond by lowering interest rates to encourage home purchases in situations like these. When you combine the lower rates with lower home prices, it creates a situation where potential buyers will decide it is the right time to get into real estate.

Stable Market

When the real estate market is in a state of flux, lenders cannot predict what's going to happen and will have higher interest rates as a result. When signs of stability start to show, interest rates will drop. It's due to a combination of more buyers feeling comfortable buying a home and there ultimately being less risk put on the lender, so they can afford to provide a lower rate.

Personal Factors

These factors are in your control when it comes to your interest rates.

Credit Score

The biggest factor is your credit score, which shows the lender what your personal risk would be by giving you a loan.  As you can imagine, a lower credit score means you are more at risk of not paying the mortgage, so you are charged a higher interest rate.

Down Payment

Having a lot of money saved for a big down payment also plays into how much you pay in interest.  Showing that you are able to save up a lot of money for a big purchase like this makes you a lower risk, which results in a lower interest rate.