When you’re looking to buy a home, you’ll want to try and get the lowest mortgage rate possible. That means paying attention to fluctuations in these rates, which can be confusing. If you know the basics of mortgage rates, you’ll gain a better understanding of why they change so often.
How are mortgage rates set? This is the most basic piece of information you’ll need to know. These rates aren't set by banks and other home loan lenders. Instead, they’re determined by a secondary market made up of investors. These investors can either keep the mortgages they buy or sell them to other investors in bundles. The price that secondary market investors pay for these mortgage backed securities (MBS) are ultimately what determines mortgage rates. In order to understand why these rates fluctuate, you need to take the stock market into consideration. Investors generally consider stocks to be riskier, while MBS are considered safer, which has a direct effect on mortgage rates. You can expect these rates to increase when the economy is in good shape or recovering, since investors tend to put more faith in stocks and buy fewer MBS. Mortgage rates generally decrease when the economy isn't doing well, since investors tend to shy away from stocks and put more money into MBS investments.
Keeping track of these rates and the fluctuations they go through, even throughout the course of one day, can be very challenging. ERA Real Estate agents fully understand how are mortgage rates set and can help you find a competitive rate for your home loan.
Need more information on home loans? Contact Donna Hatch, dhatch@erashields.com or 719-684-4121
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