By Jim Enright.
A variety of factors on a global scale - such as the value of a dollar, the currency, the US and world economy, world events (both good and bad), and anything that the Fed Chairman or members say that causes uncertainty – will make interest rates rise or fall.
Rates are primarily impacted by what’s going on in the stock market and what has happened in the past couple of days. This is because of an inverse correlation between stocks and bonds.
If stocks are on one side of a balance and bonds on the other side – if one rises, then the other falls. When stocks sell the money makes a “flight of safety” and goes to treasury bonds. As money flows from the stock to the bond market the stocks tilt up and the bonds sink.
The more money that’s going into the bond market, the lower the interest rates will be on bond yields. The reverse is also true. When money is coming out of bonds into stock and the stock market is going well you will see interest rates go up.
Remember, it’s an inverse relationship. What is good for the economy is bad for mortgage rates. Bad news for the economy is good for mortgage rates.
Another factor that is increasing rates from where very smart people think they should be is increases in guarantee fees that are imposed by our government. Guarantee fees are charged to protect investors against mortgage-backed securities (MBS) losses,
According to Inman News July 16, 2013, “The fees have nearly doubled since 2011, with one increase tied to legislation designed to offset temporary reductions in federal payroll taxes, and the other tied to FHFA’s initiative to increase private investment in mortgage credit risk. Mortgage rates paid by consumers purchasing homes or refinancing go up about one-eighth to one-quarter of a percent each time guarantee fees are increased.”
The concern is that lawmakers will use their ability to increase Fannie and Freddie’s guarantee fees in order to raise money to fund legislation with little or no connection to housing.
So when you hear of Guarantee Fees being increased, you can rest assured that it’s not the housing economy, not a world crisis, but just politicians doing what they do best.
Questions? Contact Jim Enright here.
Here’s a mortgage calculator with taxes, homeowners insurance, mortgage insurance, and with principal, interest, taxes, homeowners insurance, mortgage insurance, and even homeowners dues.
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Jim Enright, Mortgage Strategist
919-569-5930
www.MortgageChoice.com
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