In this article I wanted to take some time to educate you on what drives mortgage rates. Most homeowners will hear on the news that mortgage rates have gone up or down, but have no clue why. Armed with some knowledge, homeowners can better understand what causes the rates to change. Also they will be able to interpret the market to predict where rates will go next. This is a great way to ensure you receive a low rate when purchasing or refinancing a home.
The basic of mortgage rates, like many other things in our economy, comes down to the principle of supply and demand. In this case we are taking about the supply and demand of money. The larger the supply of money competing for mortgages, the lower the rates will be.
To break this down even further, when we talk about the "supply" of money we are talking about investment dollars. In the US there are two major categories of markets competing for these investment dollars, the stock markets and the bond markets. Generally speaking when the stock market has a bad day investors will move their money to a safer place, which is often the bond market. When money is flowing in to the bond market there is more money competing for the same amount of bonds. This will drive bond prices up and the yield (return rate on bonds) down. When the yield of bonds goes down, mortgage rates will also go down.
The bond most analysts use to represent mortgage rates is the 10 year US Treasury Bond. When the yield on the 10 year treasury bond goes up, expect mortgage rates to follow, and vice versa. So to sum it up, if a company like Apple comes out with bad sales figures, this could send the stock market plummeting. This could cause investors to put their money into bonds, which will drive the yield on the 10 year treasury down, causing mortgage rates to go down as well. This concept will give you the basics of what to look for when trying to figure out what rates will do next.
By keeping up with specific news that affects the bond and stock market, homeowners will be able to track rate trends. Although this does not guarantee the lowest rate, a homeowner or potential home buyer will be able to receive a great rate by keeping up with changes. As always, by speaking with a mortgage banker you will receive the best information. Teaming the information about the stock and bond markets with help from a mortgage banker helps borrowers to make an informed decision.
In closing, the benefit of being knowledgeable about mortgage rate trends is clear. Whether you are trying for a mortgage loan or refinance, knowing when rates may drop even lower can save you money on your home.
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