Shopping for a mortgage loan? Well many factors are important such as down payment or equity as well as credit score, loan program and ultimately loan qualifying, by far the most sought-after component is the mortgage rate.
In order to secure the lowest mortgage rate, you need a little bit of luck, and a bit of understanding about market indicators.
What makes mortgage rates move?
The trading of mortgage-backed securities, mortgage bonds on Wall Street is what mortgage rates are pegged to. It’s not the 10 year treasury or any other financial index, its mortgage-backed securities (MBS) for short.
Mortgage rates move on the news of economic indicators causing money to flow into bonds or into stocks, in a nutshell, it’s that simple.
In order for mortgage rates to get lower, people sell stocks and move their money into mortgage bonds.
How mortgage rates rise?
Mortgage rates rise on economic indicators that influence investors on Wall Street to move the money out of the bonds by selling off mortgage backed securities and moving their money’s into corporate entities and stocks.
Macro-Economic Factors That Influence The Movement Of Mortgage Rates
Jobs Report-comes out the first Friday of each month. Of this report, the unemployment rate shows the amount of people in the labor force actively looking for employment, but unable to find jobs. This report is the granddaddy of them all, because it measures the trend of the economy and what the future of the economy holds by today’s labor force.
Inflation Data Measured By The Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE)-both of these reports are used to measure the rise of the cost of goods and services to the consumer, more accurately the personal consumption expenditures index, is the Federal Reserve’s favorite measure of true inflation.
Fed (FOMC) Meeting– The FRB meets quarterly to review the economy, assess economic trends and a decision is made whether to raise interest rates, lower interest rates, or go into what’s called a Goldilocks scenario by keeping interest rates steady. One of the latest moves is influencing mortgage rates, using new technique called quantitative easing, Fed purchasing our nation’s debt to keep interest rates low to spark borrowing. Should the Fed move into tightening cycle, where they increase rates to offset the growing economy, that has the ability to influence mortgage rates sharply. We can also peg inflation to this. If inflation starts to take effect, that can significantly make interest rates rise.
FOMC Minutes– At the end of the Federal open market committee meeting, the Fed releases the minutes detailing the decisions that were made, more importantly why decisions were made and what that means for economic stability.
Gross Domestic Product-is a measure of the total production and consumption of goods and services, including trends in consumer spending, business and residential real estate, and prices.
Each of these factors influence interest rates in the following way. Positive economic news as describing each one of these reports, spells good news for the economy and people move their money into the stock market selling off mortgage bonds making mortgage rates rise.
Should any of these factors produce negative information or questionable results, typically, investors will move their money into bonds and sell off stocks to do so, causing mortgage rates to drop.
Micro-Economic Components Adjust Pricing Resulting In A Higher Or Lower Mortgage Rate
Mortgage rates move every day as economic reports surface about the economy. Combine that with the following parameters and you can see how your mortgage rate will compare to the “market”.
Credit Score-higher the credit score, lower the interest rate and vice versa
Loan Program-on any given day, the mortgage-backed securities market might have a stronger appetite for conventional 15 year fixed-rate mortgages, than conventional 30 year fixed-rate mortgages. Loan program will influence your interest rate.
Loan To Value-the higher loan to value in most cases, the higher the interest rate. While on some loan programs loan value is no longer a concern for denial, it still changes the pricing of the loan against the other factors, credit debt, income, and assets.
Units-is the property a 1 to4 unit residential property? Is there a second or third unit? If there is any unit over one, your mortgage interest rate will be higher.
Loan Amount-best mortgage rates typically are loan amounts from $175,000-$417,000. Loans in this range offer better returns for the investors in the secondary market and a reward borrowers as a result.
Occupancy-primary residence financing will always provide the most attractive mortgage rates available
Lock Period-lock periods are 15 days, 30 days, 45 days and even 60 days. The lower the lock period, the better the rate.
When you begin doing your researching for mortgage rates, know that a mortgage lender has to scrub your unique individual scenario against macro and micro economic factors that can change your mortgage rate.
Start today by getting a free mortgage rate quote with us for your next Santa Rosa Mortgage!