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What drives the interest rates up or down? Did you know?

By Ann Sabbagh

Mortgage and Lending with Seacoast Mortgage Corporation, RI (20021119LB & 20031576LL), MA (MC2107) & CT MLO 10920

April 19, 2008 08:45 AM

SO many people believe the Federal Reserve controls our interest rates. If the public hears the prime rate was lowered or the discount rate was lowered, the phone start to ring at mortgage companies.

How many of you know that what really drives the rates is: How the overseas investors view our dollar. If the investors in foreign countries start selling our bonds, the rates go up. If they buy our bonds, the rates go down.

There will always be fluctuations in the market place during times of uncertainty, such as this. In any given week, rates can fluctuate drastically. Rates can even change several times in one day!

It is best to lock in a rate and then know with certainty you will obtain the rate at closing. Refinancing is always an option later on after you own the home.

Ann Sabbagh , Seacoast Mortgage, Pawtucket, RI 508-243-1190

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Lew Corcoran

Better Living Real Estate, LLC - East Bridgewater, MA

Real Estate Agent, Home Stager, & Photographer

The Federal Reserve does not directly influence the behavior of mortgage interest rates. Rather, mortgage interest rates are dictated by investor emotion.

Mortgage interest rates are based on Mortgage Backed Securities (MBS) or bonds (NOT the 10-year or 30-year T-Bills!). Basically, if the bonds sell high, bond yields and mortgage interest rates go down. If bonds sell low, then bond yields and mortgage interest rates go up.

Bonds are affected by many economic forces that influence the demand for them. Each week, the Fed releases various economic reports that affect the movement of bonds. Foreign markets can also affect the bond market, which, in turn, will affect mortgage interest rates.

Factors that cause mortgage interest rates to fluctuate include economic reports on stock and bond behavior in the stock market, the amount of buyers to sellers that affects the movement of money in and out of the stock market, unemployment rates, inflation fears, and to a lesser extent, economic data such as GDP, CPI, PPI, etc. that reflect the strength of the economy.

I hope that it's now clear as mud!

Apr 19, 2008 11:38 AM

Juan Boldizsar

Belleville, IL

Lewis, thank you for posting that clarification regarding MBS vs. Treasury securities. Many people in our industry mistake the coincidental directionality of MBS and Treasuries for correlation, when that is quite often, not the case.

Apr 20, 2008 08:39 AM

Anonymous

Thomas

What is the probability of mortgage interest going down within the coming few weeks

May 09, 2008 03:35 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Ann...... Lewis basically summed it up well. Not trying to sound rude here, but your post had a big hole in it. You basically talked about overseas investors.... there are tons of reasons why, but in the last 4 months, MBS's have had the most influence on rates going up and down. I wrote a blog on this and will link it later...

jeff belonger

May 31, 2008 03:27 PM

Richard Byron Smith, NMLS #184479

Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289 - Chattanooga, TN

Mortgage Loan Officer

It is the consumers and the media that seem mostly to think the Fed controls bond rates. It actually seems to me to be tied precisely to the expectations of the potential impact on inflation from the day's financial news.

If the report says people are buying or gas prices are increasing, then I expect a rate increase for the day.

If the report says people are not buying or inventories are increasing, then I expect a rate drop for the day.

Many LO's gain insight from Mortgage Market Guide.

Richard

Jun 01, 2008 09:18 AM

Brian Brady

Matthews Capital Markets - Tampa, FL

858-699-4590

Thank you, Lewis. I concur.

Jun 01, 2008 09:45 AM

Rekha Vyas

Keller Williams Realty of Brevard - Melbourne, FL

By the end of June...any predictions on whether the rates are going up or down?

Jun 08, 2009 10:07 PM

What drives the interest rates up or down? Did you know?

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Ann Sabbagh

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