The Mystery of the Moving Mortgage Rate
If you are a homeowner looking to refinance or a prospective homeowner looking to buy your first home, then it is probably safe to say that you are affected by mortgage rates. You know that you want a low mortgage rate, or that you want to pay the least amount possible to get the loan that you need. It can get tricky though, when it comes to purchasing a mortgage. Not only are there so many different types of loans, there are different interest rates attached to each loan.
So what changes mortgage rates? How do interest rates rise and fall so quickly? It seems to be completely unpredictable and random, but what really drives the increase and decrease in rates?
Well, there is not one determining factor that explains the fluctuation of mortgage rates, or that will give you the power to predict rate changes in the future. Although it�s not that easy, it is good to know enough about rates to make educated decisions about your mortgage purchase. It will help to gain a better understanding of what mortgage rates are, how they are synchronized by interest rates, and what controls interest rates.
The major trigger in bouncing rates is what�s known as the capital market. This is the market of stocks and bonds. Consumers purchase different types of debt products or instruments in order to receive what is called a yield, also called a return. This yield is basically interest. A bondholder invests money in order to receive more in the end. If the bond has a high yield (interest rate), then the bondholder will receive more in return. On the other end, the mortgage buyer has to pay that interest. So while a high interest rate is good to the investor, it is bad to the borrower.
Investors have a major say in when and how much interest rates increase or decrease, as they are a major source of mortgage money. If there is high investor demand, there will generally be low interest rates. If the investor demand declines, usually bond sellers will increase the interest rates to lure them back. Unfortunately, that means you pay more.
In addition to bonds, other factors go into the change in mortgage rates. Supply and volume are determinants that are hard to predict or measure. Sometimes they do not directly correlate with demand or market trends. There is also delay and lag in rate changes. A change can take a couple of hours or several days. There can be change in fees or points but not in interest. And even when rates do change, there is a streamline effect where it must get from the capital market to the lenders to you.
Just keep in mind that mortgage rates can change, do change and will change. If you consider this when purchasing your mortgage, you can make a wise decision about which loan and payment plan will best work for you in the face of changing interest rates.