Answer #1
Many consumers regard mortgage rates as moving targets, apparently governed by
the whim of some ephemeral, capricious entity. People often feel confused and
helpless by whatever rates mortgage lenders toss their way. Seemingly mysterious
changes in rates can have a positive or negative affect on consumers and prospective
real estate investors depending on investor purchasing and goals. In turn, consumer
reaction to various economic forces can further fuel factors that cause
mortgage rates to change.
Consumers read about economic factors that cause mortgage rates to change ranging
from the Federal Reserve Board chairman announcing a quarter percent raise in
interest banks charge for loaning their money to other banks to the current
national debt figure tied to the GDP, PPI, and CPI or some other gobbledygook.
But how does this relate to real estate? Oftentimes in real estate, perception
is reality. Contrary to vox populi, the opinion of the people, the Federal
Reserve Board Chairman does not directly influence the behavior of mortgage
rates.
And why aren't mortgage rates more stable? What causes mortgage
rates to change, sometimes up, sometimes down? There is no secret formula to
account for mortgage rate behavior. In fact, it's really quite simple. Oftentimes,
like the stock market, mortgage rates are dictated by investor emotion and by
mass media force-feeding. Newspaper and television junk food is often served
and gobbled up by consumers too lazy to do the research themselves. That means
investigating and perusing other sources of information like contacting reputable
real estate and mortgage banking professionals, and weighing what they say against
your research done on the Internet or local library or bookstore. Educate yourself
first.
It's not unusual for mortgage rates or loan percentage points
to change more than once per day. For example, a mortgage loan that has no points
in the morning may inflate to a quarter point or .25 percent fee on the loan
by the afternoon. Think of mortgage loan points as a variable service fee attached
to the loan, depending on the current cost of money.
The real economic factors that cause mortgage rates to fluctuate include disparate
economic reports on stock and bond behavior in the stock market, the amount
of buyers to sellers that affects the movement of money in and out of the stock
market, unemployment percentages, inflation fears, and to a lesser extent, economic
data that reflect the strength of the economy in reporting GDP, CPI, PPI, and
so on.
Gauging what causes mortgage rates to change means identifying and defining
those factors that affect interest rates in a timely manner. For example, a
general rule of practice is to pay attention to economic data. If the data shows
hesitancy and confusion, mortgage rates may fall. Conversely, if the data shows
strength and low unemployment, rates may rise. Again, a critical element in
determining mortgage rate behavior is to be proactive in paying attention to
the various aforementioned economic indicators and acting quickly
instead of finding out MSNBC, which is oftentimes to late.
In summary, what effects mortgage rates are factors that are highly subjective,
but when these factors are taken together, they not only influence the buying
habits of the prospective real estate investor but the overall consumer as well.
Ask the right questions. Your economic vigilance will pay dividends in the
future.
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Answer #2
Mortgage interest rates are based on Mortgage Backed Securities (MBS) or bonds. If the bonds sell for a high then mortgage interest rates go down. If bonds sell low then mortgage interest rates go up. The answer is pretty simple.
Bonds are affected by many economic forces that influence the demand for bonds. Each week the Fed releases various economic reports that affect bond movement. Foreign markets also can affect the bond market which in return will affect mortgage interest rates. For example, when the Euro Central Bank and Central Bank of New Zealand hiked up their version of the discount rate, many investors sold off their bonds looking for a higher rate of return in their investment. Japan and China hold a good amount of our bonds, so if they decided to sell them to diversify their portfolio that could really affect the bond market and affect mortgage interest rates in a negative way.
I hope you find this information useful as you try to understand mortgage interest rate movement.
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