What helps to determine mortgage rates?

One of the most important aspects to successfully obtaining a mortgage is securing a low interest rate. After all, the lower the rate, the lower the payment each month. Unfortunately, many homeowners tend to just go along with whatever their bank or mortgage broker offers, often without researching mortgage lender rates or inquiring about how it all works. Whether you’re interested in rates or not, it’s wise to get a better understanding of how mortgage rates move and why. To put it in perspective, a change in rate of a mere .125% (eighth percent) or .25% (quarter percent) could mean thousands of dollars in savings or costs annually. And even more over the entire term of the loan. So what can determine the mortgage rates? 1. Treasury Bonds. The 10-year Treasury bond yield is said to be the best indicator to determine whether mortgage rates will rise or fall. Typically, when bond rates (also known as the bond yield) go up, interest rates go up as well. And vice versa. Investors turn to bonds as a safe investment when the economic outlook is poor. When purchases of bonds increase, the associated yield falls, and so do mortgage rates. But when the economy is expected to do well, investors jump into stocks, forcing bond prices lower and pushing the yield (and mortgage rates) higher. 2. Economic activity. As a rule of thumb, bad economic news brings with it lower mortgage rates, and good economic news forces rates higher. Remember, if things aren’t looking too hot, investors will sell stocks and turn to bonds, and that means lower yields and interest rates. If the stock market is rising, mortgage rates probably will be too, seeing that both climb on positive economic news. And don’t forget the Fed. When they release “Fed Minutes” or change the Federal Funds Rate, mortgage rates

can swing up or down depending on what their report indicates about the economy. Generally, a growing economy (inflation) leads to higher mortgage rates and a slowing economy leads to lower mortgage rates. Inflation also greatly impacts mortgage rates. If inflation fears are strong, interest rates will rise to curb the money supply, but in times when there is little risk of inflation, mortgage rates will most likely fall. 3. Freddie Mac’s weekly mortgage rate survey. Freddie Mac’s average mortgage rates are updated weekly every Thursday morning. Since 1971, Freddie Mac has conducted a weekly survey of mortgage rates. These are averages gathered from banks throughout the nation for conventional (non-government) conforming mortgages with an LTV ratio of 80 percent. The numbers are based on quotes offered to “prime” borrowers, meaning best-case pricing for the most part. As you can see, 30-year fixed mortgage rates are the most expensive relative to the 15-year fixed and select adjustable-rate mortgages. This is the case because the 30-year fixed rate never changes, and it’s offered for a full three decades. So you pay a premium for the stability and lack of risk. Rates on the 15-year fixed are significantly cheaper, but you get half the time to pay it off, meaning larger monthly payments. Rates on ARMs are discounted at the outset because you only get a limited fixed period before they become adjustable, at which point they generally rise. For more information and further explanation contact Steve Head, President of Texas Premier Mortgage at 281-907-6401 ext. 100.