Lots of factors affect mortgage rates including economic forecasts for jobs and inflation on a macro level and then the applicant’s qualification on a micro level.
MACRO LEVEL - Many experts were surprised to see the improvement last week in interest rates and where the 10 year Treasury finished up. I follow www.marketwatch.com every day – sometimes several times a day to watch the 10 year Treasury Note rate as this is a quick way to determine where rates are trending. Today it closed at 2.55% but last Thursday it hit an 11 month low of 2.5% .
As the 10 year Treasury Note moves down mortgage rates trend down. As it moves up mortgage rates tend to move up. The 10 year Treasury Note is the quickest indicator of 15 year interest rates and the 30 year Treasury Bond is the best indicator of 30 year mortgage rates.
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You may remember back in June of 2012 when the bond hit 1.44%, its lowest yield in 200 years and rate plummeted into the 3’s. Now all the articles I’m reading are saying that the yield is heading into the 3’s and we will be seeing rates increase in the coming months but then again they’ve been saying that for a while and mortgage rates are still terrific!
Mortgage rates for ARM loans are typically better tracked with short term money indicators like the Fed Funds Rate.
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Actual mortgage rates are largely determined by the secondary market, where mortgages are bought and sold. Fannie Mae and Freddie Mac are two government agencies who's job it is to keep the mortgage secondary market stable. They set prices each day as determined by the secondary market. They offer a guaranteed price to buy a certain type of mortgage.
Rates generally change daily. In fact, rates can change during the day as market conditions change. Normally rates are priced in 1/8th of a point increments, or .125%. Your lender may make the decision to keep their rates more stable than market changes - they may choose to earn business by keeping rates a bit below market, or above market if they want to slow down production.
MICRO LEVEL - As with many things in life you earn your interest rate based on your qualifications. Lenders weigh an applicants risk based on the 3 C’s criteria “Credit (credit score/history), Capacity to Pay (income/income history/assets) and Collateral (property type /ownership type/loan to value). If you have any risk in any of these C’s you may have to pay a premium beyond the advertised interest rate. You can also offset the risk in say a credit score deficiency by offsetting it with a low loan to value. These risks are priced using Lender Pricing Adjustments. In most cases lenders have a complicated matrix of adjustments that have to be weighed before an actual price can be offered.
Generally, all mortgage lenders have access to the same rates. When you shop rates, make sure you compare rates on the same day, at the same time, on the same program, with the same points. Otherwise, you could end up with an inaccurate rate quote. Also make sure that the person quoting the rate understands your 3 C’s.
Keep in mind your rate is 'floating' until you decide to lock it. Once you lock your rate, your lender will provide you with a disclosure showing your rate is locked. At that point, the lender is reserving that money for you and keeping your rate locked in. You are protected if rates go up.
I’m happy to discuss this topic in more detail with you – call me or visit my website 707-322-9481 or www.brendamccrackenloans.com
Brenda McCracken NMLS #1042557
