During every conversation with a new client, the question always comes up: So what are your interest rates?
My stock answer is usually: “Mortgage rates are subject to change on a daily basis and can change again at any time during the day depending on changes in market conditions. Typically, a borrower’s rate cannot be “locked” until a complete application file has been submitted to a lender for review. Any rate quoted today may or may not be what can be offered at that time.”
Granted, that is a pretty simplistic answer to a very important question. I am prepared to answer it in more detail because it does not really answer the underlying question of: What Are the Market Conditions That Make Mortgage Rates Go Up and Down?
The Stock Market
This is the easiest benchmark to follow. In general … What’s good for your 401k is not good for mortgage rates.When the stock market indexes go up, mortgage rates typically go up. When the
When the stock market declines, investors are looking for a safer place to put their money. Mortgage Backed Securities are one of these places. When the demand for these bonds goes up, so does the price. When the price of MBS increases, mortgage rates typically go down.
Conversely, when the stock market increases, investors pull their money out of the bond market causing prices to drop. As prices of MBS drop, the market has to pay a higher return to retain investors and mortgage rates will increase.
Economic Data Mortgage Rates reflect the relative strength or weakness of the overall economy on a daily basis. Rates will go up if the unemployment rate goes down and there is a better than expected economic data. Rates will go down if jobs and manufacturing is stagnant or on the decline; and when housing reports are weaker than expected.
Inflationary Pressure Low interest rates depend on low inflation. High inflation causes wages and prices to rise and the cost of borrowing to get more expensive. Good news for the economy is often bad news for Mortgage Interest Rates.
The Federal Reserve By controlling the flow of cash through the economy, the Fed attempts to keep inflation under control. The Fed’s bond-buying stimulus package added cash into the monetary system in hopes of creating a looser credit environment and an attempt to stimulate the economy with low borrowing costs aka mortgage rates. Their decision to pull money out of the system by pulling back on this package indicates they feel the economy is expanding and they anticipate inflation in the coming months.
Geo-Politics Investors turn to the U.S. markets when things go wrong in their part of the world. The relative stability of our financial markets provides a “safe haven” for their money in times of global crisis.So when you watch TV and see acts of terror or conflicts in the Ukraine, you might see Mortgage Rates go down. However, if there are reports that China’s economy is improving or Mid-East tensions are easing. Mortgage Rates can be expected to go up.
Other World Events Let’s talk about the weather! What’s bad for the world is good for mortgage rates. Tsunamis in Japan, earthquakes in South America attract investors to our markets for safety. This flood of money puts upward pressure on bond prices and push mortgage rates down. A serene weather picture around the world could push rates up.
Now I’m just a small broker doing what’s right for my clients. I’m not an economist, nor do I have a crystal ball that enables me to tell anyone where mortgage rates are heading in 2014. But I have been challenged by senior bank executives across this country to look at the big picture when making small decisions that affect peoples’ lives. As my testimonials will confirm, all I can promise is that I will do my best to provide my clients with the Right Mortgage at the Right Rate for thier family situation.
Something Other Things To Consider.
In addition to market conditions, any borrower’s interest rate is determined by many other factors including: type of loan, loan program, loan purpose, down payment or equity, and credit score. The interest rate one sees in newspaper articles is available to borrowers seeking a conventional mortgage with a 740+ credit score, have a 20% down payment or equity in their home, probably pay 1 point and is able to pay all closing costs. If a borrower’s real life situation differs from any of these criteria, lenders will perceive this as additional risk in the application and adjust the interest rate accordingly.