Where do mortgage rates come from?

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Mortgage rates fluctuate daily – sometimes even multiple times a day. Have you ever wondered where those rates come from?


The answer lies on Wall Street – specifically the trading of Mortgage Backed Securities (MBS). MBS trading can result in a dramatically higher or lower payment when you are ready to lock in your rate. Unfortunately, the indicators needed to see these real-time MBS trading feeds, are not readily available to the public.  The big question is – are they keeping track of rates in real-time and making you aware of sudden changes in the market?


If your lender tells you he can predict what direction rates will turn, please don’t listen to him – he’s crazy, or he loves to gamble (with your money). Mortgage bond prices, similar to stock prices – are random. They can’t be predicted with any sort of certainty, and they change from minute-to-minute. Some days there is relatively no movement and quoting a rate is easy, while other days are much more volatile. For instance, this afternoon my ability to lock a loan was suspended as our investors reworked the rates (and cost) due to market forces on Wall Street. Thus, my quote from this morning was very different from my quote this afternoon.


For example, I locked a client this morning. If I had locked her today after the market got worse, the cost to her to get the same rate she locked earlier, would have cost her an extra $1000. I respect my clients wanting to “sleep on it” when it’s time to think about locking their loan, but I remind them that the market is constantly moving. (see graph at bottom of this post showing interest rate changes over last 90 days) 


I am not afraid of a little competition, and I like when my clients shop for other lenders. You never know what other lenders will offer you in terms of fees, rates, and ultimately – service. Just be aware, that rates can change from minute-to-minute. Granted, they don’t always move in big chunks, but I can recall a handful of days in the past year on which conforming rates rose by .375%. And I have seen rates drop just as quickly.


No matter how good I am as a loan officer, I can’t always predict these swings. But, I can help you better understand the market, and educate you on the process of buying a new home before you even step foot into an open-house. For some reason your heart and instincts overrule your brain, and you can find yourself 30 days later having purchased a home you can’t afford, or don’t want. The key to controlling your home buying emotions is to first arm yourself with the facts, analysis and strategy, before you make a move.


The market is a little crazy now, but there are some wonderful opportunities for those looking to buy a new home (or investment property). In addition to sitting down with my clients to pre-qualify them for a loan, I also can set up a “sharing session” online so they can peek into the market as it is changing in real-time (see example graph below).


If you are shopping for a loan, remember to get a quote based on your parameters and don’t be afraid to ask a lot of questions. Anyone can quote you a rate, but how many of them take time to gather enough information to make sure they can deliver on that promise. In addition, research your lender and realtor and you will start the process in a position of strength when it comes time to make that offer!


Click here for an online rate quote

Dan Tharp


Licensed Mortgage Loan Originator NMLS #280913

Licensed by the Department of Corporations under the California Residential Mortgage Lending Act

MBS market over the last 90 days (courtesy of Rate Alert)

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