At different points in your investment habits, you tend to look around for most cheap mortgage rates available in the market. Seldom do they know that these rates dip and fall. But if you can learn how these rates work, you will be able to secure a far better deal than you expected
So tell me how mortgage rate works?
It is important that we tell you, beforehand, that these rates are unpredictable and yes, they change. Before 1950s, when they were set by the bank, they were stable. But since the Wall Street took over and adjusted them according to supply and demand or to bonds, they vary. So that when bonds – that are bought and sold on Wall Street – drop, mortgage rates do, too.
How can I know today’s bonds rates?
It would be simple math that keeping up with bond prices would tell us when to shop for bonds but, alas, only Wall Street has access to this knowledge. And they pay tens of thousands of dollars for access to it in real-time.
But can I make an approximate guess?
Yes, you can, according to the Thirty-year mortgage rates.
The events that lower rates in any given 30 years are as follows –
- Falling inflation rates, because low inflation increases demand for mortgage bonds
- Weaker-than-expected economic data, because a weak economy increases demand for mortgage bonds
- War, disaster and calamity, because “uncertainty” increases demand for mortgage bonds
On the contrary, you can derive what leads to rate elevation – rising inflation rates; stronger-than-expected economic data; and the “calming down” of a geopolitical situation.
How do I win a lower mortgage rate?
Well, that depends on your credit score or rating. The higher your credit score, the more likely you are to win a lower mortgage rate.
Different loan different mortgage?
There are four main loan types each of each with different level of interest. In each case, this level of interest hinges on mortgage-secured bonds. Here is where you choose from –
1. Conventional Mortgages – These loans are backed by Fannie Mae or Freddie Mac who have set regulations and requirements for their procedures. The Fannie Mae mortgage-backed bond is linked to mortgage interest rates via Fannie Mae. The Freddie Mac mortgage-backed bond is linked to mortgage-backed bonds via Freddie Mac.
2. FHA mortgage – These are mortgage rates given by the Federal Housing Administration (FHA). The advantage of these loans is that you have the possibility of a very low down payment – just 3.5%, which makes them popular in all 50 states. The downside is that the premium is split in two parts.
3. VA mortgage interest rates – They are also controlled by GMA bonds which is why FHA and VA mortgage bonds often move in tandem. It is also why both move differently than conventional rates. So, some days will see high rates for conventional plans and low rates for VA/ FHA; as well as the reverse.
4. USDA mortgage interest rates – They are also linked to Ginnie Mae secured-bonds (just as FHA and VA mortgage rates are). However, USDA rates are often lowest, out of the 3, because they are guaranteed by the government and backed by a small mortgage insurance requirement. USDA loans are available in rural and suburban neighbourhoods nationwide.
Here is how you can decide and make an informed decision on mortgage rates to encash on the lowest rate.