Interest rates are impacted by a borrower’s credit score, loan term, mortgage program and a series of market factors that are outside of the Lender’s control. Understanding how interest rates work will certainly help relieve a lot of anxiety about the home financing process.
While loan programs, credit scores and outside economic factors tend to control mortgage rates, borrowers do have the option of paying more up-front at the time of closing as a discount point or loan origination fee in order to get a lower interest rate.
Alternatively, borrowers currently have the option of taking a slightly higher rate in exchange for lower closing costs. This particular rate / closing cost scenario is sometimes referred to as “No Closing Cost Loan” option, or something like that.
Mortgage Rate Basics:
How Are Mortgage Rates Determined?
Many people in the believe that interest rates are set by lenders, but the truth is that mortgage rates are largely determined by what is known as the Secondary Market.
The secondary market is comprised of investors who buy loans made by banks, brokers, lenders, etc. and then either hold them for their earnings, or bundle them and sell them to other investors.
When the secondary market sells the bundles of mortgages, there are end investors who are willing to pay a certain price for those loans.
Top Five Market Factors That Influence Mortgage Rates
Timing the market for the best possible opportunity to lock a mortgage rate on a new loan is certainly a challenge.
While there are several interest rate trend indicators online, the difference between what’s advertised and actually attainable can be influenced at any given moment by at least 50 different variables in the market, and with each individual loan approval scenario.
Outside of the borrower’s control, the mortgage rate marketplace is a dynamic, and volatile
Lenders set their rates every day based on the market activities of Mortgage Bonds, also know as Mortgage Backed Securities (MBS).
On volatile days, a lender might adjust their pricing anywhere from one to five times, depending on what’s happening in the market.
Inflation, The Federal Reserve, Unemployment, Gross Domestic Product and Geopolitics are a few of the items you as a burrower can pay attention to if you’re trying to track rates for a 30 day lock.
8 Questions Your Lender Should Be Able To Answer About Mortgage Rates
Simply checking online for today’s posted rate may not lead to your expected outcome due to the many factors that can cause each individual rate and closing cost scenario to change.
Since mortgage rates can change several times a day, it’s more important to pre-qualify your lender about his/her competency level regarding mortgage rates. If your lender doesn’t know what to look for or how to answer some basic questions, there is a good chance you may never see that initial interest rate you were quoted.
What’s The Difference Between Note Rate and APR?
Low rates with a high APR may or may not be the best deal.
Comparing apples to apples is the best way to determine which loan closing cost and rate scenario makes sense for your short and long-term financial goals. Read More…
How Do Mortgage Rates Move When The Fed Lowers Rates?
The traditional news media generally announces mortgage rate movement a few days too late, or when rates are moving in the opposite direction of where we need them to go.
One of the big misconceptions most people in the have about mortgage rates is that the Fed, and / or Federal Government control what mortgage rates look like every day. .read more about (The Fed and Rates)