How do lenders set your mortgage rate? Well, actually they don't.
While mortgage lenders control who gets approved for a loan and on what terms, actual mortgage interest rates are largely determined on the secondary market, where mortgages are bought and sold.
It is these financial investors in the secondary market, not mortgage lenders and brokers, that collectively determine the interest rate of your mortgage loan.
As with the stock market, interest rates in the secondary market tend to move up and down. When the economy is on an upswing, investors demand higher yields, forcing lenders to raise mortgage rates. In a market downturn, rates tend to drop for consumers because of increased investor demand.
Conventional wisdom is that interest rates move in cycles; after a prolonged increase, a slow drop usually occurs. Some use 10-year Treasury bonds as a barometer; when bonds go up, interest rates go down, and vice versa.
To obtain the best possible mortgage rate, track as many financial trends as possible for as long as possible and time the purchase of your home accordingly.
Mortgage rates giving you motion sickness?
Let us watch for you. We'll tell you when they hit your target.
