Mortgage Rates and More

When I ask this question (What moves mortgage rates?) to people 99% of the time it's one of three answers:

• The Fed
• The 10y treasury
• I don't know

And it's not surprising to hear those answers. Most news organizations don't report how mortgage rates originate or what the primary factor behind mortgage rates moving up or down. They just usually assume it's one thing (mostly the Fed) and base their report on that wrong assumption.

The simple answer:

The good news is the answer to what moves mortgage rates is fairly simple and being able to have a decent understanding of it will put you significantly ahead of 99% of consumers. So what is it?

The Mortgage Backed Securities market.

Never heard of it? You're not alone. In fact I would not be surprised if more than 90% of Mortgage Loan Originators didn't know about the Mortgage Backed Securities (MBS) market was. The MBS market is a bond market where investors trade groups of mortgages. When the value goes up; rates move down. When the value of those mortgages moves down; mortgage rates go up.

That's it.

Are there other factors that influence the movement of consumer mortgage rates on a daily, weekly or monthly basis? Sure:

• Application volume
• Lender delinquency rates
• Cost to originate the mortgage

These are just some of the additional factors that go into formulating consumer mortgage rates.

What about the Fed and the 10 year Treasury:

The Fed and the 10 year Treasury have an influence over the Mortgage Backed Securities market but they do not directly impact consumer mortgage rates. And the Fed does not control purchase or refinance underwriting guidelines. There are times when the Fed raises rates and mortgage rates move lower (see December 2018 as proof). 

So next time someone brings up mortgage rates in a casual group conversation you can now step in and provide a little education as to what really moves mortgage rates.

It's been a great year for consumer mortgage rates however as we finish out 2019 mortgage rates are moving higher. And the move is not completely unexpected. Fannie Mae and Freddie Mac fixed rate mortgage programs still offer rates well below the levels seen back during the last three months of 2018. At that time some lenders were offering 30 year fixed rates above 5.00% and 15 year fixed mortgage rates in the mid 4's. Times have definitely changed.

What Will Mortgage Rates Due In 2020:

Great question! Unfortunately there is no easier answer if mortgage rates move lower or higher in 2020. The general industry view point is that mortgage rates should remain steady as the economy sees some improvement in 2020. With the phase one trade deal done along with the UMSCA trade deal many investors and corporations are optimistic that the economy will improve as we move into the the Presidential election year.

But be careful though; there are many instances throughout history in which the Fed, companies and investors were optimistic the economy was going to improve. Look no further than 2018; when the Fed was raising rates and most people believed 2019 was going to be banner year for the economy. It wasn't though; the stock market did well however the economy started to shed important manufacturing jobs; employment slowed along with corporate earnings.

Could mortgage rates move to new lows?

Absolutely but that's unlikely. A number of factors would have to happen to see mortgage rates move to new all time lows. Generally speaking the lowest 30 year fixed rate seen in the last 40-50 years was around 3.375% and the lowest 15 year fixed rate is around 2.75% (zero points, typical closing cost structure). On the flip side there are risks to rates moving back above 5.00%. A stronger economy, increasing wages and higher inflation are all risks to mortgage rates moving higher in 2020.

How To Plan Ahead:

If you are looking to refinance your mortgage or purchase a home it's very important you take the time to plan ahead. Know your credit score, income and debt before you start shopping around for a quote. And it's important to be realistic. If you have less than perfect credit you won't get the best terms and if you have excellent credit know that lenders will offer the best market rates they can but for the most part they won't go below that. It's important to work with a reputable company and a loan officer with a verified history of at least five years in the mortgage industry.

Mortgage Rates Winter 2019:

As we move into the last two months of 2019 it's a good idea to evaluate where mortgage rates are currently at and where they maybe during the winter months. Homeowners looking to refinance a current mortgage or homebuyers looking to purchase a new home are in a much better position to lock in a low rate compared to October, November and December 2018. 

However significant risks remain and there is a chance that mortgage rates may move higher before the end of the year. Here are the biggest risks to mortgage rates heading into November 2019:

• A trade deal with China
• Brexit deal between the UK and the EU
• Improving economic conditions

Trade Deal With China and Mortgage Rates:

In the last couple of weeks we've seen movement on two of the three risks facing mortgage rates. Mid-October President Trump announced a "trade deal" with China that sent bonds (specifically Mortgage Backed Securities) into tailspin causing mortgage rates to move higher after hitting multi-year lows in September.

In the following days it became clear that the "deal" really wasn't a deal. First off there was nothing signed and second the Chinese government stated there was no formal deal and only general agreements about what a deal might look like. Despite the no deal "deal" bonds remained in sell mode and mortgage rates in California and across the country remained elevated.

Brexit Deal and Mortgage Rates:

And just last week a deal between the UK and the EU was struck however it still needs to be approved by Parliament. After the announcement that the UK government would ask the EU for another extension bonds did not improve and mortgage rates remained higher than in previous weeks.

Improving Economic Conditions:

If we see improving economic conditions in the coming weeks we may see mortgage rates move even higher. This is perhaps the biggest risk for mortgage rates heading into November and December. A stronger economy leads to higher mortgage rates and a weaker economy can lead to lower mortgage rates.

Locking In A Low Mortgage Rate:

If you are buying a home or refinancing a current mortgage it's important not to take too many risks when it comes to locking in a low rate mortgage. When it comes to mortgage rates there is a general rule of thumb you should know about: 

Mortgage lenders are quick to raise mortgage rates and slow to lower them.

If mortgage rates look attractive to your current situation then you should not hesitate to lock in terms as soon as you can. For those that are buying a home; is it really worth risking the closing of loan just to save $20 - $50 per month? 

If you're refinancing a mortgage avoid the temptations to try and lock in at the lowest possible level. Most people who do that end up paying more then they were hoping for or missing out all together.

Mortgage Rates:

Looking for the current mortgage rates and/or daily mortgage rate updates?

Our current mortgage rates section is one of the best places you go to stay current with mortgage rates, news that affects mortgage rates and money saving tips.

How To Get The Best Mortgage Rate:

Finding the best mortgage rate is something every home owner and home buyer want to do. The problem is the internet is full of information and it’s hard to know where to start. Here are some simple tips that can save you time and money on your next mortgage transaction.

• Only work with top rated companies (A rating or higher w/ the Better Business Bureau)
  
  
• Only work with a Loan Officer with at least 5 years of experience and a strong reputation
  
  
• Avoid the hard sell. If a Loan Officer is high pressure then his/her offer is probably too good to be true.
  
  
• Ask questions and if the Loan Officer doesn’t answer them directly it’s probably a good idea to find a new Loan Officer.
  
  
• Obtain 2-3 quotes and be realistic. If one mortgage company out of 100 is offering a ridiculously low rate then avoid the trap of thinking that’s were mortgage rates are at.
  
  
• Service - It's true; you can get low mortgage rates with top notch customer service. Avoid the companies that don’t offer both; especially if you’re a first time home buyer. The best first time home buyer guide can help those that are buying a home and need some extra information to help them better understand the process.

Be Patient Even If You Have Limited Time:

I know it’s hard to be patient with locating a mortgage company to work with; especially if you have little to know time.

But when you search for a mortgage company don’t just go with the one that sounds the best; do you research about the company and the Loan Officer to make sure they are someone you want to work with.

It literally takes 5-10 minutes to find out if they are reputable or if they are someone to avoid.

The Most Important Thing:

Ask questions, and then ask more. You can tell a lot about a Loan Officer and mortgage company about how they handle the questions their clients ask.

To get the best mortgage rate work with a company that will answer all your mortgage questions in a timely manner.

Refinancing Your Mortgage:

If you are considering a refinance of a current mortgage then one of your main goal is probably to save money.

Even if you are taking cash out, getting rid of PMI (or MI) or maybe you’re moving from a 30 year fixed rate mortgage to a 15 year fixed rate mortgage...you’ll still want to save money.

Below you’ll find useful tips that could save some homeowners thousands of dollars and might also make your next refinance transaction a bit easier.

And for those of you who are in a super rush and only want the number one tip; here it is:

My best possible tip when refinance your mortgage: Only work with a top rated company (A rating or higher with the Better Business Bureau) and a Loan Officer with at least five years experience (ideally 10+ years).

Tips That Can Save You Money:

Below are money saving tips for your next mortgage transaction.

• Only work with a well respected mortgage company that has at least an “A” rating with the Better Business Bureau.
• Only work with a Loan Officer that has at least five years of experience. Ideally you’ll want to find a Loan Officer with at least 10 years of experience.
• Stay on top of current mortgage rates. Avoid the websites that have “rate tables” and use sites that are highly rates.
• Rarely does it make sense to pay more than one point. When points are involved make sure you recoup the costs of the points within a suitable time frame. Anything longer than 2-3 years comes with risks you may not see the savings from the lower rate that came with a higher cost.
• Don’t do a 15 year year fixed mortgage term unless you are nearly certain you can afford the payment. It’s great to pay off the house early; just make sure that the higher payment is something that works for your budget.
• When you lock in your interest rate make sure you obtain the Locked Loan Estimate from your loan officer.
• When it comes to locking in your rate; never assume it’s locked...get the confirmation in writing.

When doing a refinance it’s important to ask questions and make sure you understand what’s happening. There is a lot going on but it’s absolutely necessary you ask questions to ensure you’re fully informed with the type of loan you are obtaining.

What do you do if your Loan Officer doesn’t like to answer questions?

Find a new Loan Officer.

There are 10's of thousands of Loan Officers out there; if the one you’re working with doesn’t want to answer your questions then find someone that will.

Lastly; if you see a mortgage rate with terms that work for your financial situation please avoid the mistake so many people make.

What’s the mistake?

They wait to see if they can get it slightly lower and usually end up missing out on the terms they could have locked in originally.

Higher The Credit Score - Lower The Rate:

To a certain point this is true; the higher your credit score the lower your mortgage rate will be.

For Conforming mortgage loans a 740 or higher credit score will enable you to obtain the best possible interest. So even if you have a 800 credit score the improvement to your interest rate will top out at 740.

FHA home loans there really is no high credit score - lower rate link however you ideally would like to have a credit score above 580 when it comes to a FHA loan.

In this post I’ll provide information you can use to ensure your credit score is high so that your mortgage rate is low.

Credit Report Tips For A Higher Credit Score:

1. When it comes to your credit cards; always keep your balances below 35% of your credit limit: Having a credit card balance above 35% could negatively affect your credit score if it becomes an on going occurrence. A few months above that level will probably have minimal to no affect on your credit score. If you go month after month at 50%, 60% or higher that starts to really bring down your credit score.
   
   And this is the most important thing for those that pay off/pay down their balance every month: Make that payment PRIOR to the last day of your bill cycle. Credit card provider report to the credit bureaus the balance listed on your statement.
   
   So if you have a credit card with a $5,000.00 limit and receive a bill for $4,750.00, the credit bureau receives that exact information and it appears to them you are maxing out your credit card (even if you pay the bill off in full by the due date).
   
   
2. Number of open credit cards: Some people incorrectly think that if they have no credit cards they’ll have a great credit score.
   
   That is not true.
   
   In fact your credit score will be really low and if you’re trying to refinance your home you’ll rate will be higher then it needs to be. Why? Because for you to obtain a high credit score you need to show the credit bureaus that you can handle credit. If you have no open credit cards how do you expect to show that?
   
   Do you want to have ten open credit cards? Probably not.
   
   Ideally you should have two - four open credit cards with no balances above the 35% threshold.
   
   
3. Credit Report Errors: If your name is spelled wrong, your home address is spelled wrong or any other basic factual information is wrong - correct that as soon as you can.
   
   If there are errors on your credit report such as missed payments you’ll want to correct them as soon as you can.
   
   But what about something that is 5-6 years old and you “think” is an error? Maybe it’s a small collection account or a missed payment on a credit card.
   
   You might be best to just leave it alone.
   
   Negative items like missed payments only stay on your credit report for seven years. Disputing something thats more than five years old will probably turn out to be a waste of time.
   
   Something that old is not hurting your credit score significantly and to remove it you’ll have to prove it was an error on the creditors part.
   
   
4. Credit Report Inquiries: Most people think that every time you have a creditor check your credit your score drops dramatically. That simply is not true.
   
   Credit Bureau’s understand the importance of shopping around so when you look for a new mortgage or car loan; they take that into consideration. 
   
   Does that mean eight - ten companies can check your credit without your score going down a bit? No but three, four or five mortgage (or car) companies checking your credit will have very little to no affect on your credit score.
   
   With respect to credit cards it’s a bit different. Applying for five credit cards at once might bring your score down so when applying for a new card make sure that’s the one you want.

Good Credit Can Save You Money:

Having good credit can save you thousands of dollars when it comes to obtaining a mortgage. Use the above tips to get your credit score as high as possible.