Last reviewed March 30, 2015Tweet
The best way to lock low mortgage rates is to understand how and why mortgage rates change.
Mortgage rates change daily, and sometimes more frequently. They're based on the going price for mortgage-backed securities (MBS), which are bonds bought and sold on an exchange, in a similar manner to stocks.
The price of a mortgage-backed bond moves opposite from its yield, or rate. When MBS prices rise, mortgage rates fall. Conversely, when MBS prices fall, mortgage rates climb.
If you can know in which direction mortgage bonds are moving, then, you can better "time" your mortgage rate lock.
Unfortunately, it can be difficult to know how mortgage bonds -- and, consequently, mortgage rates -- are moving on any given day. As compared to the stock market, which is well-covered on TV and in print, mortgage bond markets are often more opaque.
For this reason, having access to "mortgage news" can help you make better loan choices.
Mortgage News falls into two categories -- product news and market news. Product news includes new mortgage programs for which you may qualify; and changes to existing mortgage guidelines which may make it easier to get approved.
Market news includes economic developments which can change today's mortgage rates.
As a consumer, the more you know, the more likely you'll get your best mortgage rate possible. You'll also know which mortgage programs are available, and how to apply.
As the U.S. economy expands and contracts, mortgage lenders make changes to available loan programs. Sometimes, they'll tighten loan requirements and, other times, they loosen them.
Since 2010, lenders have overwhelmingly loosened their requirements. More U.S. home buyers qualify for financing than during any period this decade; and refinancing is now possible for millions of homeowners across the country.
Lenders have also removed the investor overlays they set late-last decade.
An "investor overlay" is an additional loan hurdle which an applicant must clear beyond a loan's formal guidelines. One such example enforcing a minimum credit score of 580 on an FHA loan whereas the FHA requires scores of just 500.
Another example of an investor overlay is when a lender verifies credit scores for an FHA Streamline Refinance.
FHA program guidelines explicitly state that neither income, nor credit, nor employment must be verified in conjunction with an FHA Streamline Refinance. However, many lender choose to verify such information regardless.
It's important to know when lenders are loosening guidelines or doing away from investor overlays. Your exact loan application which was turned down last month could be approved today under a new application.
Other program changes which affect consumers is when mortgage programs are introduced or canceled.
For example, for at least a decade, there were just two refinance programs available to homeowners who owed more to their mortgage than their home was worth. These two programs were the FHA Streamline Refinance and the VA Streamline Refinance.
Then, in 2009, the government launched a third program, called the Home Affordable Refinance Program (HARP). HARP was meant to help homeowners with non-FHA and no-VA loans refinance to the day's low rates.
HARP has been used more than 3 million times since its launch. Yet, millions more remain eligible to use it, with a typical savings of 35% or more annually. many homeowners are unaware that the HARP program exists, which is why the government has taken to hosting town hall-type meetings to boost awareness.
Homeowners who know about HARP are the ones who save the money.
The same is true for the 97% loan, introduced by Fannie Mae and Freddie Mac in December 2014. The loan, which can be used for purchases and refinances, is an extension of the former Conventional 97 program; and fills a refinance gap as HARP 3 had been expected to.
In addition to changing mortgage programs, rate shoppers should be wary of changing mortgage rates.
Mortgage rates change all day, every day, so long as the bond markets are open. Rates change in response to economic data, geopolitical developments, and the expectations investors have for the future.
Economic data which affects mortgage rates include the monthly Non-Farm Payrolls reports, which is also known as the jobs report; the Existing Home Sales report and the New Home Sales report, which report of the health of housing; and, broader data including the Gross Domestic Product (GDP) and inflation readings.
In general, strong economic data leads mortgage rates up. Weak economic data leads mortgage rates down. However, this relationship is imperfect. For example, when inflation rates are falling, mortgage rates tend to improve regardless of what's happening with the economy.
Events overseas affect U.S. mortgage rates, too.
Via a trading pattern known as "safe haven buying", economic or political uncertainty abroad can push investors away from risky investments and toward safer ones. Meanwhile, U.S. mortgage bonds are considered among the safest asset classes worldwide.
This is why mortgage rates tend to drop during periods of war, weather, and recession. Investment seek "quality" investment in order to protect against loss.
Safe-haven buying is sometimes called "flight-to-quality" for this reason. Demand for quality assets such as MBS pushes up prices and drives down rates.
Lastly, mortgage rates change based on Wall Street's expectations for the future, a blanket term which covers the economic expectations, inflation expectations, and policy expectations via the Federal Reserve.
Expectations are often self-fulfilling.
When Wall Street expects inflation rates to worsen in the future, mortgage rates will worsen today in advance of inflation ever happening. Similarly, if Wall Street thinks the Federal Reserve will cause mortgage bonds worsen based on some future action, mortgage rates will rise today in anticipation of that event.
Rate shoppers, therefore, can never completely prepare to lock today's lowest interest rates. However, with advance planning, consumers can mitigate the risk of a potential, looming hazard.
Up-to-date mortgage news can help consumers prepare for locking mortgage rates; and, to know when it's best to lock a mortgage rate as opposed to floating one.
Mortgage rates change without notice so get a live rate quote now. Rates are available online for free with no social security number required to get started and no obligation to proceed whatsoever.
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.
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