How can you learn to predict mortgage rates too.
Many people, especially first-time homebuyers, tend to shop at the cheapest mortgage rates they see not knowing, or understanding, that these prices will go down and down. If you understand how mortgage rates work, you’ll be in a much better position to get one that actually works for you and may even be cheaper than what you’re prepared to commit to, say, today.
Here’s how mortgage rates work.
The first thing you should know about these rates is that they are unpredictable. They changed. Today’s high may be tomorrow’s low. At one time, this rate was more stable. They are set by the bank. But since the 1950s, Wall Street took over and adjusted it according to supply and demand. Or rather, Wall Street associates it with bonds. So when bonds – which are bought and sold on Wall Street – go down, mortgage rates go down too.
How can I find out today’s bond rates?
It sounds simple: let’s follow bond prices and we’ll know when to shop for our mortgage. Unfortunately, only Wall Street has access to this knowledge (called “mortgage-backed securities” (MBS) data), and they pay tens of thousands of dollars to access it in real-time.
Here’s how to make a smart guess:
Calculate according to, the so-called, thirty-year mortgage rate.
These are the events that lower rates in a given 30 years:
A decrease in the inflation rate, as low inflation increases the demand for mortgage bonds
Weaker-than-expected economic data, as a weak economy boosts demand for mortgage bonds
War, disaster and disaster, because “uncertainty” increases the demand for mortgage bonds
On the other hand, an increase in the rate of inflation; stronger-than-expected economic data; and “calm” the geopolitical situation that tends to raise interest rates.
The most common mortgages and mortgage rates
You will also find that mortgages vary according to the level of your credit rating. The higher your credit score, the more likely you are to win a lower mortgage rate.
Mortgage rates also vary by type of loan.
There are four main types of loans, each with a different interest rate. In each case, this interest rate depends on the bonds guaranteed by the mortgage. These four types of loans together make up 90 percent of mortgage loans distributed to US consumers.
Which mortgage loan do you want?
Here’s the list:
1. Conventional Mortgages – These loans are backed by Fannie Mae or Freddie Mac who have set the rules and requirements for their procedure. Fannie Mae’s mortgage-backed bonds are tied to mortgage rates through Fannie Mae. Freddie Mac mortgage-backed bonds are linked to mortgage-backed bonds through Freddie Mac.
Mortgage programs that use conventional mortgage rates include “standard” 30-year fixed-rate mortgages for borrowers who pay a down payment of 20% or more; HARP loans for underwater borrowers; Fannie Mae HomePath mortgages for foreclosed mortgage buyers; and, Pending Financing Loans that replace equity for buyers paying cash for a home.
2. FHA Mortgage – This is the mortgage rate granted by the Federal Housing Administration (FHA). The advantage of this loan is that you have a very low down payment possibility – only 3.5%. Therefore, they are popular and used in all 50 states. The downside is that the premium is split into two parts.
FHA mortgage rates are based on mortgage bonds issued by the Government National Mortgage Association (GNMA). By the way, investors tend to call GNMA, “Ginnie Mae”. When Ginnie Mae bond prices rise, interest rates for FHA mortgage plans fall. This plan includes standard FHA loans, as well as FHA specialty products that include 203k construction bonds; the $100 Good Neighbor Next Door program; and FHA Back to Work loans for homeowners who recently lost their homes in a short sale or foreclosure.
3. VA mortgage rates – VA mortgage rates are also controlled by GMA bonds which is why FHA and VA mortgage bonds often move in tandem with both being controlled by fluctuations from the same source. That’s also why the two move differently from conventional rates. So, some days will see high rates for conventional plans and low rates for VA/FHA; vice versa.
VA mortgage rates are used for loans guaranteed by the Department of Veterans Affairs such as standard VA loans for military borrowers; VA Energy Efficiency Loans; and VA Streamline Refinance. VA mortgages also offer 100% financing to US veterans and active service members, with no requirement for mortgage insurance.
USDA mortgage rates – USDA mortgage rates are also tied to Ginnie Mae secured bonds (like FHA and VA mortgage rates). However, of the three, USDA rates are often the lowest because they are guaranteed by the government and backed by small mortgage insurance requirements. USDA loans are available in rural and suburban settings nationwide. This program provides no-down payment financing to US buyers at very low mortgage rates.