What are Mortgage Rates Linked To?
Many people are misinformed about how mortgage interest rates are determined. The disbelief lies in a misconception that mortgage interest rates are tied to the Treasury 10 year bond. Well… that is completely false. Mortgage interest rates are linked to the trading of mortgage backed securities. Tracking mortgage backed securities can be done by examining the trading of the Fannie Mae bond.
Many loan officers/mortgage brokers tell their clients that they are monitoring mortgage interest rates by looking at the 10 year Treasury bond. However, these loan originators are wrong. As a consumer, you must make sure you trust your refinance to someone who knows how mortgage interest rates are affected. One of the first questions to ask a loan originator is how they are able to predict whether mortgage interest rates are going up or down tomorrow.
Another misconception is that when the Fed cuts interest rates, people believe mortgage interest rates are being cut. That is also completely wrong. When the Fed cuts rates, the Fed is referring to the Feds Fund Rate which is not linked to mortgage interest rates in any manner.
Mortgage backed securities are affected by many factors. These factors include economic news and supply and demand. For example, whenever there is a big refi boom, as there was earlier this year, a large supply of mortgage backed securities hits the market which lowers the price of these securities. When the price lowers, mortgage interest rates go up and vice versa.
Make sure you do not get burned in your next refi or home purchase and get the best mortgage interest rate possible.
