Rebecca Richardson - Mortgage Consultant
Check out these tips to better understand why rates go up, rates go down
Certainly, mortgage professionals and home buyers keep a watchful eye on the rates. But do you know how many factors go into your mortgage rate? If you said “a lot,” you’d be close.
One of the most important discussions I can have with my clients is what goes into their rate and how it can impact their purchase.
Factors that affect rates People and the media talk about interest rates like it’s a gallon of milk at the grocery store.
In reality, there are over a dozen factors that affect what rate is quoted.
Keeping these criteria in mind when you’re researching rates can be helpful if you see something advertised or on the news.
👉 Loan type 👉 Credit score 👉 Loan amount 👉 Property type 👉 Paying points 👉 Lender credit 👉 And more
Unless two loans are quoted on the same day with the exact same terms, there will be differences.
It’s good to keep an eye on rates to know where they are trending, but to know your exact options, talk with a lender. I’m licensed in dozens of states and would love to help.
MBS and the Fed The Federal Reserve Bank is a central character when it comes to rates. What the Fed has done recently is that it raised the prime rate. The prime rate is the rate banks charge each other to borrow money. The primary reason the Fed did this is to keep inflation in check.
So, if the Fed didn’t raise mortgage rates, who did? Well, mortgage rates are based on mortgage-backed securities (MBS). Those are bought and sold based on how much interest those bonds produce. In times of inflation, the rates need to increase to give investors the yield they need to keep investing.
While there is more than a dozen or so factors that go into how variable the mortgage rate can be, the best thing to watch to stay current on rates is the 10-year Treasury, which as it goes up and down, mortgage rates typically follow suit.
A rate’s price It’s a common misconception that there is one rate for your mortgage scenario. When in reality, there could be multiple rates for the same mortgage, it just depends how much you want to pay for it.
There basically are 3 different price points for rates: 💵 Par rate – standard rate with standard closing costs 💵 Discount points – you can pay higher closing costs – with points – that basically lowers your rate for the term of the loan. 💵 Lender Credits – you can opt for a higher rate but pay lower closing costs often by getting a credit at closing from your lender.
So, when comparing mortgages, pay attention to the rates, certainly, but also make sure to know what you are paying to get that rate.
For tips on rates or anything about your mortgage, give me a follow or reach out to me and my team. We’ve helped thousands of homebuyers and have seen virtually all scenarios there is and can help you today.