What Really Moves Mortgage Rates?

Mortgage rates are set daily by individual lending institutions and are based solely on the trading activity of mortgage-backed securities (MBS), a type of bond that investors trade daily.

Without getting too technical, MBS are bonds that represent mortgages currently in place. For instance, let's say you have a 30-year fixed rate mortgage of $200,000 at an interest rate of 6%. That loan isn't worth anything right now, but over a 30-year period, it represents a profit of 6% or up to $12,000 every year for the bank that owns the loan, provided you make all of your payments.

However, instead of waiting 30 years to collect on that profit, your loan is "sold" to a bank where it is bundled together with other similar loans. It's like winning the lottery and choosing the cash value prize instead of accepting full payments that are spread over 20 years. Of course, you get less money than the total value of the prize if you choose the cash upfront, but you don't have to wait twenty years to collect it all.

This group of bundled loans then, just like a public company, is split into smaller units or bonds and sold just like stocks in a company to investors. These bonds, secured or backed by the profits from the loans, are called mortgage-backed securities. And just like stocks, investors like you and me can buy and sell them every day.

And it's the performance of these specific bonds that lending institutions use to set mortgage rates.

The real dynamic at the heart of interest rate movement, then, is the complex relationship between stocks and bonds, supply and demand, inflation, news that moves markets, the economy, employment levels, political events, gross domestic product, and any number of other factors.

And while there exist a number of somewhat reliable economic indicators, if anyone tells you that he or she has the secret formula for predicting these movements exactly, it's just not true. There is no magic formula, no index, no rate cuts or Fed activities that work 100% of the time.

The best you can hope for is an experienced mortgage professional who truly understands mortgage-backed securities and how they trade. He or she can utilize specific market knowledge and experience to take advantage of daily fluctuations and lock in a rate that could save you thousands of dollars throughout the life of your loan.

If you're waiting for the Federal Reserve – or worse, the media – to create refinance or new home buying opportunities for you, don't count on it. Get a mortgage to purchase a house without going thru a bank: http://www.WEBUYFASTNOW.COM

They have fixed interest rates of 4.5% - 8% and deal with credis scores down to
the 500 level.