We all know what mortgage rates ought to be. We will complain when they are too high and rejoice when they are too low. This is because we have come to terms with the fact that market forces beyond our lender’s control are in charge of interest rates and there is nothing we can do about it.
Do you know what controls the mortgage rate quotes in Tempe? Let's find out:
How Do Mortgages Get Funding?
This is the first link in the puzzle. The money you get from your mortgage comes from huge financial investors who provide funds by investing in mortgage-backed securities. This is the secondary market. The lenders use the money from these securities to mortgage buyers who will often repay fast enough to facilitate the sale of another mortgage.
As the investors in the secondary market aren’t interested in quick returns, the lender can keep circulating the money in form of more loans and collect profit which will pay the mortgage-backed security investor once the time is right.
The Secondary Market Controls Your Rates
As the secondary market is the one providing the money, you lender will offer an interest rate subject to what the secondary market is willing to buy.
Consequently, mortgage rates will fluctuate in tandem with:
- U.S. stocks
- Foreign market
- The job market
These are only some of the factors that affect the economy, hence the trust or willingness of the secondary market to fund the lenders.
The Easiest Way to Predict Mortgage Rates
Even though there are tons of factors affecting mortgage rates, you can do an easy prediction by monitoring the 10-year Treasury bond yield. If the yield goes up, mortgage rates go up and vice versa.
Knowing mortgage rate determinants won’t necessarily help you get a better deal. After all, they are adjusted after 10 years. It will only make you more comfortable when buying your home since you will know what’s going on in the background.