To understand how mortgage interest rates are determined, let's step back to look at what happens to your mortgage once you sign on the dotted line and agree to pay back your mortgage loan over the next 30 years.
The Lender will sell your mortgage to Fannie Mae, Freddie Mac, or another large mutual fund investor. By selling the mortgage, the lender gets its money back quickly (at a profit) so it can lend the money again to the next mortgage borrower. In turn, these huge financial investors (known as aggregators) bundle lots of mortgages into securities that behave like bonds (now known as mortgage-backed securities - MBS). The aggregator divides the MBS into shares (known as tranches) to sell to other investors.
Investors are interested in an MBS because they are looking for an intermediate term investment with stable payments. Your lender offers you an interest rate that investors in the secondary market want to earn. The higher the mortgage rate, the more attractive the tranches are to investors. The lower the mortgage rate, the more attractive mortgage loans are to the homebuyer. It is these investors and homebuyers that determine your mortgage rate. The lender and the aggregator are just middlemen trying to balance the interests of the investor and the homebuyer.
When the economy is on the upswing, investors demand higher yields (rates) on the MBS, forcing your lender to raise mortgage rates as investors move into the equity markets. When the economic outlook is weak, interest rates tend to drop as investors turn to bonds as a safe investment. Mortgage rates rise quickly and are slow to fall, as lenders are cautious.
There are many economic factors that will ultimately affect the mortgage rates for consumers – the rate of inflation, the Jobs Report, the Consumer Price Index, the Gross Domestic Product, the Home Sales Report, and the Consumer Confidence Report. And when the Federal Reserve releases the “Fed Minutes” or changes the Federal Funds Rate, mortgage rates can go up or down, depending on what the report indicates about the economy.
The best place to determine if mortgage rates will rise or fall is to follow the 10 Year Treasury Bond Rates. Why not follow the 30 Year Bond, the term that matches most mortgages? The average mortgage is usually paid off or refinanced within ten years. Add 170 basis points or 1.70% to the 10 Year Treasury Bond and this is about where mortgage rates will land.
With interest rates at historic lows, now is the time to lock in your low rate for the next 30 years.
For a list of lenders I recommend text LENDERS to 443-903-2181 or Click Here
For more information visit: http://money.howstuffworks.com/personal-finance/financial-planning/mortgage-rates-determined3.htm
Author:Alexander Necker Phone: 410-920-4760 Dated: August 30th 2016 Views: 109 About Alexander: ...
View our latest blog posts in your RSS reader. Click here to access.
About Alexander Necker, Real Estate Sales Consultant
I specialize in selling the Baltimore Metropolitan’s Premier Homes.
I am an Eagle Scout. I mention this because the process of becoming an Eagle Scout provided me with the foundation by which I live my life. The values of trustworthiness, integrity, and helpfulness have allowed me to become the man I am today.
The words that describe me are:
Driver of my own professional destiny
Conduit for connecting people for professional development
Devoted husband with a wonderful wife
Father to 2 beautiful children with growing college funds
Student of Finance and Investments
After graduating college and starting a career in my field of study (agronomy), I quickly rose to the position of assistant and then superintendent of private golf courses. After 17 years in the golf business, I decided it was time to change to a career where I would not be at the mercy of the uncontrollable forces of sun, wind and rain. I chose a field where I would be the master of my fate, where the hard work and the long hours to which I am accustomed would be the determinant of my success.
The primary reason I am in the real estate business is to help people. A real estate transaction is one of the largest financial transactions you will ever undertake. Everyone deserves a real estate partner that understands and appreciates that fact. My focus on integrity, trust and communication are nothing less than I would want for myself, my family or friends entering into a large financial proceeding. I am committed to being the one real estate agent that keeps my client's best interests front and center.
In real estate, I consider myself to be a true professional in the same vein as the physician, the attorney and the accountant whom you must trust with the most important assets of your life. Nothing less is acceptable.
Alexander NeckerProudly PresentsA Glenangus Custom Home Located i
"Alex Necker came highly recommended to us and we are delighted to write a review of his performance as our realtor.
We wholeheartedly recommend Alex to anyone seeking to buy or sell a home. With his eagerness to please and stellar competence, he made what could have been a trial (buying a home) a breeze for us. We found his demeanor most engaging. He was always cordial and personable toward us. His work ethic, diligence and promptness of service impressed us beyond measure. He treated us as though we were his only clients. His attention toward us was more that of a family member than a realtor to client. We truly felt he was our advocate, not merely serving as simply our realtor. He insisted we were aware of possible flaws with the home we ultimately decided to buy and we found his honesty refreshing. After all, no house is ever going to be perfect. He thoroughly enjoys his work and this is personified in his attentiveness and enthusiasm. Do not even consider engaging the services of any other realtor. After working with Alex, we no longer consider him as simply a realtor who made buying our new home a snap, we consider him a friend for life!"