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How Rates Change . . .

The cost to obtain a mortgage rate is affected by the yield of the 10 year treasury bond.  When that yield goes up,  the cost of the mortgage rate goes up with it.  As the yield continues to increase, the mortgage rates follow, until low rates are not offered.  When lenders look at their rates sheets they see a rate and a cost or rebate for that rate.  The bracketed numbers below are rebates, or a percentage rate the financial institution (investor) the broker is working with will pay the broker for writing that particular rate.  (The non-bracketed numbers are costs - how much that loan costs the broker to write)  So if the broker writes a $300,000 loan at 5.99%, the investor will pay that broker 2 points (2%), or $6,000 on a 30 day lock.  The borrower will probably pay 0 points for that loan, since the broker is getting  market price.  But if the borrower wants a lower rate and wants to pay 2 points (6,000) the broker will pick a "par price" (a price as close to 0% rebate as possible) so the borrower will end up with a rate of 5.625%. 

Rates and rebates change constantly.  In mid March of 2008 a 5.875% rate had a cost of 2% on a 45 day lock.  A month earlier a borrower could get that rate and not pa anything for it.  That means a borrower would pay no points for a $300,000 loan at 5.875%  in February $6,000 for the same rate in mid March.   In just a month the cost on that rate deteriorated by 3% ... yikes!!!  What happened?  The yield on the ten year treasury bond went from something like 3.42% to 3.6%, which used to not be enough to cause such an increase in costs, but the banks have to make up for all those bad loans, so consumers have to pay.   Click on the VW Micro Bus to read an explanation about these higher loan prices to the consumer straight from a FNMA account executive.

Click here to use our really cool mortgage calculator!

Just one or two days can mean the difference in as much as half a percent rise or fall on a mortgage interest rate.  When you are in the market for a mortgage, then, you need a broker who will keep an eye on the market for you.  When the yields were going down I held off on locking a rate for my clients, since each day they went down the rate improved.. But lets say they go down for three days and start to go up, what did I do?  On the morning the rates begin to move up I had until about 11 am to lock in a rate at the previous days price.  If the rates go down again a few days later, well, I had a way to get my client the better rate... 

Do you want to know what the rates are going to look like tomorrow?  Click here to find out how!