If you’ve been following me on Twitter, you’d know that rates have increased as much as 1/2% since Monday. If you haven’t been following me on Twitter, today – you might consider starting. The bus of low mortgage rates has left the station and it’ll be a while before it returns.
To understand why rates have been climbing this week, you first have to understand what mortgage rates are based on. Mortgage rates directly correlate with value of mortgage backed securities (MBS). Rates are NOT based on the 10 Year T-Note, stock market, or the fed funds rate (FFR). These common misconceptions are due to the lack of visibility of MBS. In order to receive live bond quotes, you have to pay to subscribe to a service (and it’s not cheap).
Ok, now for the specifics on WHY rates have increased (so much) this week. When you buy a bond (like a mortgage backed security), you buy it and it will have a pre-determined amount paid over time. If inflation is creeping up, that pre-determined payout is going worth less to the owner of that bond in the future. Make sense? When investors see inflation as a concern, they sell off their mortgage bonds and put their money elsewhere.
The higher the value of a mortgage backed security, the lower an interest rate will be on a mortgage. If the value falls, rates increase. As I had mentioned, some individuals in my industry give advice to follow the 10-Year T-Note the same way I follow mortgage bonds. I’m not one to laugh at other’s expense (actually, I sort of do), but take a look at what happened today (especially if you were watching the 10-Year T-Note):
A loss of 103 basis points for MBS is a big one. Rates worsened between 1/4% and 1/2% just Thursday. If you or your loan originator were following the 10-Year T-Note, you missed the bus… and you will be spending thousands of dollars more over the life of your loan because of some bad advice.
Are you and your loan officer watching the right indicators? Do you know when the best time to lock is? Is someone managing your mortgage? Are you receiving top notch advice? Does your lender have access to live, real time, mortgage bond quotes?
If you answer no to any of these questions, we should chat. I love this stuff, seriously. I look like a kid at a candy store when I’m watching bond quotes… It’s sick, it’s sad and you should take advantage of it.
