If you’re in the market for a mortgage, the worst gauge for the direction of mortgage rates is the media. Here’s why …
Mortgage rates trade in lockstep with the mortgage back securities market which changes with the ebb and flow of the stock market. As money flows in and out of stocks, the same happens with the bond market. As a result, the price of a mortgage-backed security does change much the same way as the price of a stock does. When you read an article on CNBC that mortgage rates are now at an all-time new low, you cannot take it at face value that you will automatically receive that snazzy interest-rate.
Both Fannie Mae and Freddie Mac are the two mortgage giants that buy 97percent of all residential mortgages in America. They are the source for the most accurate mortgage rate information. When they announced mortgage rates ticked up, they are taking an average of all loan applications across all mortgage companies in America. You heard that correctly, it’s an average. An average is simply a ballpark range of where the general market is.
Let’s say on a Tuesday morning at 11a.m. Eastern standard time which is the same time that mortgage rates have improved 75 basis points. Put another way if you’re looking at a 30-year fixed rate mortgage for example at 3.875 percent at no points, now that interest-rate is priced at 3.875 percent with a lender credit of .75 percent of the loan amount. Then you go to lock-in and at 1p.m., pricing has changed again, such a scenario is very realistic based on the flow of funds to the bond market.
The media will never ever allow you to identify an exact interest rate and exact structure and pricing of how your loan will be determined because of some other factors including, but not limited to the following:
• Loan size
• Credit score
• Loan program
• Property type
• Debt to income ratio
Generally speaking, but not always, when the economy is doing poorly, mortgage rates are improving. People uncertain about the future of the economy when there is negative economic information move the money into the fixed income market where there is typically less volatility than the stock market. When this occurs, yields rise and rates to the consumer drop. When positive information surfaces within the economy, people will move the money out of the bond market and put the money into the stock market where they can typically get better returns. This will cause yields on bonds to worsen and rates to the consumer to rise.
If you’re looking to get a mortgage and are eyeing an interest rate, make sure you’re speaking with a qualified advisor who can articulate what’s going on in the market and give you the best possible advice about when the timing is to lock-in that desired interest-rate.
Get a complimentary mortgage rate quote online today.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.