So Why Do Mortgage Rates Change So Much?

Have you ever called a mortgage company and received a quote and then called back the next day and the same rate was no longer available??

Mortgage companies, Banks and Credit Unions are subject to potential daily and even hourly shifts in the market. Interest rates fluctuate on the simple principal of supply and demand.   

Mortgage rates trade based on Mortgage Back Securities and The Bond Markets as well as the overall economy.  The vehicles that mortgage rates are based on are considered very conservative, stable and tend not to have the wild swings that one would find in the Stock Market.  If the Stock market begins to see large increases or decreases, Investors will shift Billions of dollars in and out of the Stock Market and move them in to the Mortgage Markets.  This will cause mortgage rates to either rise or fall.  Stock Market tanks, good news for Mortgage Rates, Stock Market rallies and rates suffer.   Investors and Traders will constantly shift funds out of the riskier stocks into the safe haven of the mortgage markets.  These shifts can occur as little as once a day or in some cases can happen multiple times during a trading day. Thus causing mortgage rates to possibly change multiple times in a day.

These markets are affected globally as well; so even after the markets are closed in US, whatever is happening in Europe, Asia and around the world will cause our markets to move one way or the other.

What drives interest rates (click here for quick facts)

Here are some of the variables that are being watched in today’s market:

• Covid-19 – Global Pandemic
• Ukraine
• Europe and Asia’s Economy
• Comments by the President
• Politics
• The US Housing Market
• Unemployment in our Country
• The Price of Oil and Gas
• The “Feds” decision to move short term interest rates
• The overall health of the US Economy

Any of these items can trigger a rally one way or another.  Even a simple comment at a breakfast meeting by the President, the Fed Chairman or someone in power is enough to influence the markets.

Additional Mortgage Rate and Index Information:

To help us understand why mortgage rates change, it is important to realize that there is not one interest rate, but multiple ones. Below are some of the most prevalent interest rates and indexes that also have an impact on mortgage rates:

Prime rate – This rate is often offered to a bank’s best customers. If you are shopping for a home equity line of credit, then it is important to familiarize yourself with the prime rate. HELOCs are typically based upon the prime rate -plus or minus a certain percentage.

LIBOR – Stands for London Inter-bank Offered Rates. Libor rates are based upon the rates that a select group of London Banks offer each other for inter-bank deposits. Many adjustable rate mortgage programs use the Libor index.

Treasury bill rates ”T-bills” and Treasury Notes – These are short-term and intermediate debt instruments used by our Government to finance their debt. The treasury index is based upon the auctions of U.S. Treasury bills or on the Treasury’s yield curve. Like the LIBOR index, the U.S. Treasury index is a popular index for adjustable rate mortgage products. Also, the Twelve Month Treasury Average (12 Month MTA) is a popular index which is based upon the twelve month average of the monthly yields of U.S. Treasury securities (maturing in one year). The MTA is a popular choice for option arm mortgage programs.

Treasury Bonds – Unlike T-bills and Treasury Notes, treasury bonds are long-debt instruments. These bonds are used by the U.S. Government to finance its debt.

Cost of Savings Index – often referred to as the COSI index. This index is based upon the annual average of interest rates on World Savings deposit accounts. The average is pulled on the last day of each month.

11th District Cost of Funds – Often referred to as the COFI index – The COFI index is based upon the average of the borrowing cost to member banks of the Home Loan Bank of San Francisco of the 11th District. Unless you are shopping for an option arm mortgage, it is unlikely that your loan will be affected by this rate.

Certificates of Deposit Index – Often referred to as the CODI index – this index is arrived at by calculating the average of the past twelve months rates of 3 month CD rates.

Federal Funds Rate – The fed funds target rate is the rate which federally chartered banking institutions lend balances to other depository banks overnight.

This is a lot of information to weigh each day when calculating mortgage rates.  In general, most Banks, Investors, Lenders etc. will set rates around 10:30am once most of the morning economic reports have been released and the markets have had time to react to the information.  In a calm trading day on Wall Street, these rates would be good for that day.  In a day where lots of Economic reports and World events are occurring, these rates can be reset a few times as the Markets fluctuate.  It is important to call your lender or bank often to check on these rates as they can and will change.  It also important not to follow online rate sites that may be posting Average Rates as this information can be old as well a different Financial Picture then you may have.  The Freddie Mac rates are based on closed loans from last week and an average of .7 Points of fees in the rate. This may give you a range, but not accurate enough to base your mortgage payment on or what is happening today in the markets.

Bill Nickerson has been in the Mortgage industry since 1991. Please leave a comment, email or call me anytime with questions you may have about mortgage programs, rates and to get approved for a mortgage.

   NMLS# 4194  www.billnickerson.com  978-273-3227

Bill Nickerson

Pre-Qualification vs. Pre-Approval

In Today’s Real Estate Market, it is more important than ever to have a Pre-Qualification in hand when shopping for a home that has been prepared by a reputable Lender, Bank or Credit Union.  The terminology has changed from Pre-Approval to Pre-Qualification depending upon the detail of the Approval provided.

Pre-Qualification

A mortgage loan pre-qualification is an estimate of how much house you can afford and how much money a lender would be willing to loan you.  The best time to get pre-qualified is right before you start looking at homes.  This way you can focus on looking at houses that are within your price range.  By providing a loan officer with your income, assets, debts, and a potential down payment amount, he would then be able to give you a ballpark figure of how much he thinks you could afford to pay for a monthly mortgage.  Your Credit is reviewed and your loan is submitted through an Automated Underwriting Service (AUS). There is no cost to this service and no commitment is required.  This estimate is a helpful tool to you in figuring out if buying a home is a viable option, and if so, what your price range would probably be. A pre-qualification is to give you a range of home prices and in no way is a commitment to lend on a home. The time frame for this is less than 24 hours.

Pre-Approval

Getting pre-approved means that you have a tentative written commitment from a lender for mortgage funding.  In the pre-approval process, you provide a loan officer with actual documentation of your income, assets, and debts.   The Loan Officer is submitting this as if it is an actual loan and a property has been identified.  This will be reviewed by the lenders underwriting team.  The lender will run a credit check and verify all your employment and financial information. Once the final approval comes in, the lender will give you a letter of commitment stating how much money the bank is willing to loan you for a home purchase. Having a certified pre-approval in hand when you start house hunting lets real estate agents and sellers know you are serious about buying when they see you have your mortgage funding in place.  By having your funding in place, it becomes an extreme advantage over other buyers when it comes to negotiating your home purchase as your offer will stand above the rest and you will be able to close in a much shorter time period. The timeframe for a Pre-Approval can take up to 5 Business Days.

It is important to note that a pre-approval and a pre-commitment is still subject to further review as any loan is.  As variables change in lending or in the borrowers financial picture, additional items may be required. In addition to the financial commitment, the lender will also need to verify the property appraisal and title search.

Bottom Line:     

Pre-Qualification is an estimate of a price range of what you can afford by verifying credit, income and running your loan through an Automated Underwriting System such as Fannie Mae or FHA as well as others.     Pre-Approval is a verified commitment from the bank stating how much money it will loan you. Make sure your Pre-Approval is an actual commitment from the bank as opposed to a Loan Officer just doing a quick credit check.

For More Information about Loan Approvals, Loan Programs and mortgages that are best suited to your financial needs, contact me anytime at 978-273-3227 or  email me  and  you can always visit my mortgage site at www.billnickerson.com

Bill Nickerson

Apply for a Mortgage with Bill Nickerson

Hi, My name is Bill Nickerson and I am a Senior Loan Advisor with Flagstar Bank based out of Michigan.  I have been providing residential mortgages since 1991. I grew up in Acton, Massachusetts, My Father was from Concord and my Mother was from Boxborough and we settled in the middle.  

One of the steps in preparing yourself for home ownership is to obtain an approval from your lender or bank.  This process involves filling out a mortgage application and this can be done online, in person as well as over the phone.

This process is done without identifying a property, we would use a range of purchase prices with your down payment to create payments that you are comfortable with.  It is important to understand that it is not what you are approved for, but what you are comfortable paying each month while carrying your traditional living expenses.  You will want to develop a long term plan, 5 to 10 years of what your goals will be with home ownership.  This will help you with budgeting and planning for the size of home you that will best suit your financial needs.

In addition to the application, we will be looking to verify your income, assets and debts through pay-stubs, bank statements and pulling your credit.  Once we have these items in hand, the approval process will take about an hour to confirm this information and provide you with an official approval letter. Here is a detailed list of the items needed for your approval.

 I work closely with your real estate agent and real estate attorney to help coordinate your offer and the purchase of your new home.

To apply for a mortgage, you can click here Apply Online, once completed, I will receive an email alert and will begin the process immediately for you.

For more information on home ownership, to make an appointment for a consultation, feel free to call or email me anytime.

Bill Nickerson NMLS #4194

Flagstar Bank

1500 District Avenue, Burlington MA 01803

www.billnickerson.com

978-273-3227