Primer On 30-Year Mortgage Interest Rates - Is There a Way to Tell When They Will Go Up or Down?

One of the most common misconceptions is thathappen. The rate on the 30-year fixed mortgage
when the Federal Reserve lowers interest rates, as itwould fall a little bit further. It doesn't matter if you are
has done recently, that mortgage loan interest ratesseeking Oregon Home Loans, California Home Loan
will also decrease. This is absolutely incorrect. The onlyMortgage Rates or a Tennessee Mortgage, when the
type of loan that is affected by a decrease or anyield on the bond goes down so does the interest rate
increase in the Federal Reserve's interest rate is theon the 30-year.
Equity Line of Credit. While this type of mortgage isThe opposite is also true; if more people sell bonds
directly affected by what the Federal Reserve does,then the bond rate rises, causing mortgage rates to
your everyday 30-year fixed mortgage is not.also rise. Sometimes, during a trading session, so many
Instead, one has to look at the 10-year bond topeople are either buying or selling the 10 year bond,
determine long term mortgage rates. If the interest ratecausing it to spike in one direction or the other, that
on the bond goes up then mortgage interest rates willlenders will actually make adjustments to the interest
rise, if the bond goes down the interest rate on the 30rate in the middle of the day. In the morning it might
year mortgage will also go down.have been possible to get a borrower a loan at
How does the bond go up or down? What determines5.625% only to have to settle for the same loan later
this?on in the day at a rate of 5.75%.
If, for example, 10 investors buy the 10-year bond at anGenerally a competent loan officer is able to lock in a
interest rate of 3.78% and then the 11th investorrate before a mid day rate change, but sometimes it
(usually these are large institutions) also wants to buycan be very difficult to accomplish, especially during
into the bond, that investor might have to settle for amonths when the bond market is showing a lot of
smaller interest rate, possibly 3.77%. If another 10volatility, as it has done recently.
investors also want to buy the same bond then atSo why do investors buy and sell bonds?
some point one of those investors might have to settleIf the stock market is strong and the economy is
for 3.76%. As more people buy the bond, the ratestrong, institutions will want to be invested in the stock
decreases because at some point the next investormarket and consequently stay away from the bond
will have to settle for a smaller interest rate.market. Especially if they have determined that they
Already in this scenario, because more people werecan earn more than the 3.78% annual interest rate the
buying bonds than selling them, the yield on the bondbond market is offering. However, if they sense that
slipped from 3.78% to 3.76% a loss of .02%. If thethe economy is faltering, large institutions will flock to
bond were to close at this rate at the end of the day,the bond market to minimize stock market loses and
then the rate on the bond would have been loweredlock in a secure interest rate on their investments.
buy .02%.Recently, economists have been predicting a recession
So how does this correspond to the 30-year fixedand so institutions have been investing in the bond
mortgage? Well since the bond was lowered by .02%market, bring the price of the bond down and
then the interest rate by which a lending institution canconsequently lowering 30-year mortgage rates. As a
charge its borrowers will also be lowered becausematter of fact, by historical standards interest rates
now the lending institution is borrowing money at aare very low, under 6% for the best borrowers; rates
lower interest rate than the day before. If it were to fallthat have not been around for several years.
another .02% the next day, the same thing would