| Every time "The Fed" raises or lowers their rates, I get | | | | gain investor dollars, and the stock market will lose |
| calls as a mortgage broker because clients think their | | | | those investment dollars. Conversely, when stock are |
| mortgage interest rate is going to be affected. This is | | | | going great, people will put their money into stocks |
| not necessarily true, as I will explain in this article. | | | | versus bonds. |
| The Fed rate is basically a statistic that offers banks | | | | In order, then, for those mortgage-backed bonds to |
| an ability to borrow, overnight usually, from their local | | | | attract investment dollars, they will have to offer higher |
| Federal Reserve Bank, money to meet minimum | | | | investment return rates. That means those mortgages |
| reserve requirements. The Federal Reserve Board | | | | they buy from lenders will have to have higher interest |
| meets regularly and adjusts this rate to "tweak" | | | | rates. |
| economic growth in America. | | | | And this is what really drives mortgage interest rates |
| If the Fed thinks inflation is oncoming they will raise this | | | | from day to day. |
| rate to reduce the money supply. Conversely, if they | | | | Anyone can log onto Yahoo or dozens of other sites |
| believe recession is looming, they may lower this rate. | | | | and see a rate for a 30-year fixed rate mortgage. But |
| Certainly, inflation and recession do have an effect | | | | understand this, those rates are just an average. From |
| upon mortgage rates, eventually. But not directly nor | | | | across the country, from many different lenders. |
| immediately. | | | | Lenders use a broad spectrum of criteria to set the |
| When a bank makes you a loan to buy or refinance a | | | | rate on each mortgage loan they do. Some lenders |
| home, they then turn around and re-sell that loan, often | | | | are not lending at all in certain areas of the country, |
| to a quasi-government agency such as FNMA - | | | | because of falling property values in that area, high |
| "Fannie Mae" or GNMA - "Ginnie Mae" and then use | | | | default rates, etc. If they do lend there, they will raise |
| those funds received to continue making more loans. It | | | | their rate because of the increased risk. |
| is a cyclical process. | | | | Then there are criteria for each client they look at. |
| Those agencies, known as the "secondary lender | | | | Credit score. Loan-to-Value ratio. Debt-to-Income ratio. |
| market", obtain funds to buy these loans from lenders | | | | So don't go on Yahoo, see the "current" rate for a |
| by selling bonds known as mortgage-backed securities. | | | | fixed rate 30 year mortgage is 5.9% and expect to |
| They package billions of dollars of individual mortgages | | | | necessarily get that rate on the loan you apply for. |
| into a single security that is sold as a bond | | | | Every loan is really a unique story, and this is where a |
| Bonds are usually secure investments and people and | | | | certified mortgage planner can come in as a valued |
| institutions will invest in them, but those investments are | | | | trusted advisor and guide you through the maze. |
| in constant competition with the stock market for | | | | And it is a maze that changes every day, even |
| investment dollars. | | | | several times a day! |
| When bonds are offering high interest rates, they will | | | | |