My New Blog

I often have clients and business associates ask me about interest rates and what they are doing.  It is very difficult to give a generic answer to this question since every borrower’s situation is unique.  However, there are some constants that impact rates for all borrowers.  In this section of my BLOG, I will give a brief explanation of what affects interest rates and more important the how and "WHY" behind the change.

A popular misconception is that the 10 year Treasury note is how mortgage interest rates are determined.  Actually, mortgage interest rates are determined by FIXED RATE MORTGAGE-BACKED SECURITES (bonds) traded every day just like most other stocks and bonds.  These bonds are sold in 0.5% increments (example 5.50%, 6.00%, 6.50%) and are priced accordingly.  I will be happy to explain the relationship between price and rate if anyone is interested.  I personally follow the activity of these bonds every day and know when to secure the best possible interest rate in the short term.

Mortgage Bonds trade daily based on technical factors, but economic news can and often does have a big impact on interest rate changes.  There are numerous economic reports that occur on a monthly basis, some of which have a greater impact on mortgage bond pricing than others.  Examples of high impact indicators are: Consumer Price Index (CPI), Personal Consumption Expenditure (PCE), Employment Reports and Federal Open Market Committee (FOMC) meeting/minutes.  The items listed are only a representation and not meant to be an all inclusive list of indicators that could potentially affect rates.

So why do these items affect mortgage interest rates?  The bottom line is inflation and what the leading indicators “say” about inflation.  The FED (Federal Reserve) likes to see inflation in a range of 1% - 2% ~ inflation is currently at 2.69% down from a high of just over 4% a year ago.

If there is “bad” economic news it is usually “good” for mortgage interest rates and vise versa.  The reason for this is that “bad” news usually means inflationary pressure is reduced.  What I mean by “bad” is that the data released is lower than expectations.

I am going to end my discussion and open it up for your questions.  My goal is to create a more informed and educated consumer so you make better choices when it comes to your home financing.