Mortgage Rates

Unlocking the Mysteries of Mortgage Rates

If you have been shopping for a home recently, or looking to refinance for that matter, you have probably been looking at mortgage rates pretty closely. The fluctuating rates can seem over-whelming at times. Rates can drop .1-.3 points in a matter of days if not hours. So what does it all mean? Who determines rates? How can I ensure I will get the best rate when I buy my home? These are a few of the questions we will explore today in hopes to shine some light in this somewhat mysterious segment of the marketplace. In it's simplest form, mortgage rates are tied to the US Treasury, and the amount (and rate) for which they are purchased and sold. The Federal Reserve dictates monetary policy in the US, and a subset of the reserve, the Federal Open Market Committee (FOMC) regulate the buying and selling of treasury bonds. The main goal of the FOMC is to keep prices stable, and the economy growing. Pure and simple. The main tactic they have to control this is to set the Federal Funds Rate- or, the rate that banks charge when they make a "sale" of money to a bank, for example. This rate is at the lowest level it can be- zero. This obviously contributes to the interest rate for which banks charge the consumer for such loans as home mortgages, etc. Mortgage rates get a bit more interesting when we start looking at their relationship to the overall economy, and the actions of the open market. Simply put, investors in mortgage backed securities (not bankers or mortgage lenders) are in the drivers seat when it comes to setting interest rates. In a down economy, like we are in today, investors search for bonds because the assume the Federal Reserve will cut, or keep it at zero for example, to keep the economy going. If they wait too long, they'll end up with lower yeilding bonds. Demand for these types of bonds are fairly strong right now, therefore the lenders that offer them can offer lower yields. Why would they offer higher yields if everyone wants them? They are going to pay as little as they can. This, in turn, results in lower rates for consumers. Simply put, if you want to know what may happen with interest rates, keep an eye on the Federal Reserve. If the market starts to expend, the reserve is bound to raise their rates, which will push mortgage rates for all us higher. An even better indicator for the short term is to watch the financial news, and be mindful of a return to a growing economy. If you have been on the fence with making a move to a larger home, now may be the best time to make such a move. Your dollar goes a lot longer now than it will when the economy improves. Also, any reduction in price you may take in the sale of your existing home, you are sure to make up for in the purchase of another home. A down market can work in your advantage if you stay in the market, expeciallywith mortgage rates at the historic levels they are today. Contact Brad Douseviczat 802-879-4477to explore your options.