Mortgage interest rates change constantly.
Some days, mortgage rates rise. Other days, mortgage rates fall. Most¬†days, though, you'll find rates¬†doing both -- rising and¬†falling. This can make it difficult to shop "today's lowest rate".
Mortgage rates are unpredictable, after all.
However! When we understand how mortgage rates work and what makes them move, as consumers, we can put ourselves in a better position to shop for what's great.
Even a small change in rates can impact your budget.Click to see today's rates (Jan 23rd, 2017)
Shopping for low mortgage rates can be¬†a challenge.
Mortgage interest rates are in perpetual flux, and change with little or no advance warning. One minute, rates are improving. The next minute -- literally -- they're getting worse.
However, it wasn't always like this. Decades¬†ago, mortgage rates were "set" by your bank.
In the morning, the bank would establish a rate to give to its customers and, the next day, it would set a new rate. Sometimes, the banks set rates for a week, or for a month.
Today, banks don't set rates. Wall Street does.
Wall Street investors constantly buy and sell a class of bonds known as mortgage-backed securities (MBS) as a balance for their portfolios. Sometimes, the prices for MBS rise. Other times, they fall.
The "going price" of these mortgage-backed bonds is what makes today's mortgage rates.
If you can understand how¬†mortgage-backed securities work, then -- even on the most basic level -- you can put yourself in position¬†to shop for a better mortgage rate.
Thankfully, mortgage-backed securities¬†aren't too complex.
Mortgage-backed securities are bonds and they're bought and sold on Wall Street. Like¬†stocks, bonds have a price.
When investors think the price of a mortgage-backed bond is good, they buy it.
When a whole¬†lot¬†of investors think MBS pricing is good, they¬†all¬†want to buy it. However, it's not like there's an unlimited supply of mortgage-backed securities on the market so you have a situation where lots of people want to buy something that there's not a lot of.
As the¬†forces of Supply and Demand kick in, the price of mortgage-backed securities rises and, because MBS prices and mortgage rates are inversely related, consumer mortgage rates drop.
Understanding this relationship between MBS prices and mortgage rates is the first step toward knowing "Is today a good day to lock a mortgage rate?"
However, there's a little bit of a problem: laypersons don't get access to Wall Street data which showing MBS pricing. As a rate shopper, you can't turn on the TV to see whether prices are rising or falling or doing nothing.¬†Wall Street pays tens of thousands of dollars per month to access real-time like that.
So, what should you do? The good news is that you have a few option. None are perfect, but each is pretty good.
You have¬†ways to make educated guesses about what's happening in MBS markets, and affecting today's live mortgage rates.
For example, you can memorize this list (or bookmark this page) because the events below almost always shift¬†30-year mortgage rates¬†lower:
When you see events like these in the news, it's a good bet that mortgage rates are on their way down. Not every time -- but many times.
Conversely, when you see stories about rising inflation rates; or, stronger-than-expected economic data; or,¬†the "calming down" of a geopolitical situation -- these all tend to move¬†mortgage interest rates higher.
Watch the news for 15 minutes, and you'll get¬†a good feel for the direction in which mortgage rates are headed. The system's not 100 percent, but it's fairly good.Click to see today's rates (Jan 23rd, 2017)
Another idea to keep in mind is that mortgage rates are not one-size-fits-all.
Unlike banks which used to give the same rate to everyone, Wall Street is very good about segments and makes sure that mortgage borrowers get access to lower rates if they're more likely to make good on their mortgage each month.
This is why consumers with high credit scores often¬†get access to lower mortgage rates than those¬†with low credit scores; and, why¬†buyers of multi-unit rental homes tend to get quoted higher than buyers¬†buying single-family homes as a primary residence.
Mortgage rates will also¬†by loan type, of which there are four.
These four loan types¬†account for more than 90 percent of mortgage loans made to U.S. consumers and their interest rates are each governed by mortgage-backed securities. This means that by watching the news or by getting alerts, you can forecast near-term mortgage rates with reasonable certainty.
Conventional mortgages are mortgages backed by Fannie Mae or Freddie Mac. Each has its own mortgage-backed security which controls in which direction mortgage interest rates are headed.
The Fannie Mae mortgage-backed bond is lined to mortgage interest rates via Fannie Mae. The Freddie Mac mortgage-backed bond is linked to mortgage-backed bonds via Freddie Mac.
The most common mortgage program using conventional mortgage rates is the "standard" 30-year fixed-rate mortgage rate. This is the program to which home buyers gravitate when they're making a downpayment of 20 percent or more. There are other conventional mortgages, though, too.
Other loan programs which are bundled into the Fannie Mae and Freddie Mac MBS include the HARP refinance loan for underwater homeowners; the HomeReady‚ĄĘ mortgage for buyers who want to put 3% down; and, the equity-replacing Delayed Financing loan for buyers who pay cash for a home, as examples.
FHA mortgage interest rates apply to loans insured by the Federal Housing Administration (FHA).¬†FHA loans are available in all 50 states and are most often used by home buyers in search of a low downpayment.
This is because FHA loans require a downpayment of just 3.5%.
FHA mortgage interest rates are based on mortgage bonds issued by the Government National Mortgage Association (GNMA).¬†Among investors, GNMA is more commonly called "Ginnie Mae".
As Ginnie Mae bond prices rise, the mortgage interest rates for FHA loan programs drop. These programs include the standard FHA loan, as well as the FHA's specialty home loan products, including the 203k construction loan; the $100-down Good Neighbor Next Door program; and the¬†FHA Back to Work loan.
The¬†Back to Work loan¬†is for homeowners¬†who recently lost their home in a short sale or foreclosure.
VA mortgage interest rates are also controlled by Ginnie Mae mortgage-backed securities. VA mortgage rates, then, tend to move in tandem with FHA mortgage rates (but are often quite lower).
VA mortgage interest rates are used for loans guaranteed by the Department of Veterans Affairs such as the standard VA loan for military borrowers; the VA Energy Efficiency Loan; and the VA Streamline Refinance.
VA mortgages offer 100% financing to U.S. veterans and active service members, with no requirement for mortgage insurance.
USDA mortgage interest rates are governed by Ginnie Mae mortgage-backed securities -- just like FHA and VA¬†interest rates.
USDA loans are available in rural and suburban neighborhoods nationwide. The program provides no-money-down financing to U.S. buyers at very low mortgage rates.
USDA loans are guaranteed by the government and that sponsorship allows for a discount to the program's mortgage insurance rates.
Roughly 90% of the geographic United States is USDA loan-eligble. If you're buying in a USDA-approved area, take a good look at the program. It's often the least expensive way to buy a home with little or nothing down.
Mortgage rates are unpredictable. However, with an understanding of how mortgage bonds work -- and what makes them move -- you can be a better position to lock your lowest rate possible.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Jan 23rd, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Barry L. Systems Analyst
The Mortgage Reports is an excellent resource. I depend on the Mortgage Reports for the most up-to-date information regarding shifts in government policy and mortgage rate information in general.
Don B. Retired
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Mohammed Y. Retired
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)