Going back a few months all we heard in the news and through the grapevine was the fact that mortgage rates were going to go down to 4% or possibly even lower.
What ever happened to that? Are you still waiting for rates to reach that level before you make a decision to move on your home purchase or refinance? Where do you think rates are going from here?
Well if history tells us anything it tells us that interest rates are cyclical so if we just came out of a low interest rate environment, chances are…
Let’s look at it like this, there are many things that impact interest rates for home loans; things like the unemployment rate, retail sales info and like everything else rates are also influenced by “consumer confidence”.
Blah blah blah right? For the average consumer this doesn’t mean anything (unless you have become addicted to the financial news shows as of late). Overnight we have thousands of MSNBC experts all of a sudden. For the most part they like to share what I call, interesting but useless information. They can repeat word for word what someone from the news said but they will never use it in real life nor do they have any idea what most of it really means and since it changes 30 minutes later with another piece of news it ends up being useless. It’s like running in circles!
As far as mortgage interest rates go, the two biggies are the relationship between stocks and bonds and inflation. You see, usually when the stock market is doing well (rally) money flows to stocks because of the higher returns. So in response to this, Bonds need to “raise” rates in order to make them more attractive to investors by providing “higher returns”. The opposite is also true, there is a very strong relationship between stocks and bonds and the competition over where the money goes.
The second biggie being inflation is very important to mortgage interest rates because as inflation continues to climb, interest rates will climb with it. I am sure anyone out there that has ever sat down with a good financial planner to talk about retirement has heard the term ”future value of money”. You know… $10 today will not buy you the same thing that $10 will buy in 20 years. Well lenders understand this also and with mortgage loans being longer term loans for the most part, take this into consideration when creating the pricing on their mortgage rates.
And if you are thinking right now “Hey, how about when the Fed lowers interest rates? Doesn’t that lower mortgage rates also?”
Although there may be an influence on some level, these are not directly related!
The fed only controls two types of interest rates.
1. the Discount rate (this is the rates The discount rate is the interest rate banks are charged when they borrows funds overnight directly from one of the Federal Reserve Banks and
2. The Federal Funds Rate…the rate that banks charge each other for overnight loans.
These are not in direct relation to mortgage rates, these are short term rates and mortgages are LONG term many times the opposite ends up being true. They move in different directions, not a good way to forecast where mortgage interest rates are going.
So what is the point of all this financial babble? When shopping for a home mortgage, micro-managing the market usually does not do you any good, you need to align yourself with someone that is knowledgeable enough to provide you with solid, honest advice as to what your best options are. I think the days of “oh, my cousin just got his mortgage license” are gone and it’s time to seek out professionals that well versed in their businesses.
Stay tuned as I will continue the conversation on ways to lower your interest rate in order to get as close to this 4% mortgage as possible.
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25. October 2009 at 1:01 PM
Feds certainly did try their best it seemed to keep rates low. The scary part to me is what is going to happen now when they stop buying up the MBS? Who is going to fill that gap and what will happen to mortgage rates now?
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caraballo12345 Reply:
October 26th, 2009 at 5:44 PM
Thanks for commenting florida mortgage:
We all know that rates are still near historic lows and anyone interested in mortgage financing would do well to look into their options sooner rather than later.
As to who will fill the gap and where rates will go, we need to see if we can come up with a new (creative) way to make buying these things valuable to the investor. If not, we know that rates will continue to be affected short and long term.
I try to have my clients concentrate on factors that are within their control like their credit, D-T-I and overall approve-ability. This way they can obtain the best rates in this or any other market.
I will have a post based on this subject coming up soon so stay tuned.
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