March 24, 2021 at 10:04am | Michael Hunter
The interest rates assigned to a home loan (mortgage). Based on price of mortgage-backed securities (MBS)- bonds backed by U.S. mortgages. Vary between conventional, FHA, VA, USDA, and jumbo loans; and by mortgage lenders.

How They're Made: Some want a ball park number, some want a personalized one. You don't want to overpay on a mortgage, so you want to make sure you get a good rate.
- "Made" based on bonds traded in mortgage-backed securities (MBS) market. Mortgage-backed bonds trade all day, everyday.
-MBS changes constantly.
-Mortgage bond based on supply and demand:
  • When wall streets demand for mortgage bonds increases, mortgage bond prices rise = mortgage rates drop.
  • Mortgage rates and MBS prices move in opposite directions.
Demand for mortgage bonds change for multitude of reasons-- the most common is risk avoidance.
Most mortgage-backed bond guaranteed by U.S. government-- "extra safe".

Mortgage rates are subject to "adjustments"; price changes made by agency which secures the bond.

Things that don't control mortgage rates: They're based on price of mortgage-backed securities, no other direct forces on U.S. mortgage interest rates.
  • 10-Year Treasury Note: 10-year treasury note is a debt-issuance from U.S. treasury, and overtime the 10-year and mortgage-backed bonds will trend together, but can diverge.
  • Federal Reserve: Federal Reserves primary policy tool- Federal Funds Rate- unlinked to mortgage rates. 
    • An overnight interest rate at which banks borrow money from each other. It's an interest rate given by Federal Reserve and used to change speed at which U.S. economy expands.
    • Federal Funds Rate linked to current mortgage rates, there would be a linear relationship between the two. 
  • Congress: Or any other elected U.S. official. 
    • They can't affect demand for mortgage-backed securities world-wide; can change how loan-level pricing adjustment are used; but influence remains indirect. 
Good mortgage rate shopping:
  • Shopping for mortgage rate is shopping for associated closing costs.
  • Mortgage lender will never quote a rate without  telling you fees that go with it so pay attention when you get a quote. 
  • 2 Ways to Shop:
    • for a particular mortgage rate you want. 
    • for a particular closing cost you want.
~When you can isolate a single loan variable for comparison such as "cost" or "mortgage rate"
~To find a lender, ask each what the interest rate would be assuming no closing cost whatsoever.
How to time mortgage rate lock: after choosing lender, want to have lender execute a rate lock commitment on your behalf.
-Rate Lock:
  • commitment from bank to honor specific mortgage rate for specific number of days. 
  • state lender will close loan at agrees-upon mortgage interest rate. 
  • risky to a bank because anything can happen prior to loans closing. Longer for which rate lock commitment lasts, more risk bank assumes and higher interest rate. 
- 15 day rate = 30 day mortgage rate- 12.5 basic points (0.125%)
-30 day rate = market rate
-45 day rate= 30 day mortgage rate + 12.5 basic points (0.125%)
-60 day rate = 30 day mortgage rate + 25 basic points (0.25%)
~~ Also important to refinancing households.~~



You message has been sent!

Send us a Message

You agree to receive automated promotional messages from Michael Hunter regarding real estate information and education.Click here for terms and privacy policy. Message frequency varies. To opt out of receiving messages from me, text STOP to cancel. Reply HELP for help. Message and data rates may apply.