Understanding Mortgage Interest Rates
What influences mortgage interest rates?
Mortgage rates are impacted by mortgage backed securities (MBS).
MBS's are bonds connected to groups of mortgages being take out by homebuyers who are locking their interest rate on that day.
MBS trends are very complicated, but one thing is certain: Alan Greenspan does not set mortgage rates!
Rates are set at a minimum on a daily basis (on normal business days) in the mortgage industry, typically by 9:00 or 9:30 a.m. Mountain Time. This give the industry time to see what MBS's are doing for the day before pricing. If there is a lot of movement in the MBS market, prices may be reissued throughout the day (as much as the market warrants).
You should be able to talk with your mortgage consultant to learn more about what is moving the mortgage rate market in any given week.
Why do rates vary from lender to lender?
Although the industry is pricing from mortgage backed securities for any given loan product, a mortgage company may decide to take a loss on the price of their money (price below the market) to attract business.
In the same way, an individual originator may decide to give up their personal income to buy down the rate they are offering to attract business.
Why not take the lowest rate?
Despite common perception, the mortgage business is not a commodity business. It is a service business, the service being what happens from the time of application to the time of closing.
As with most service industries, you pay for the service you receive. If you needed a root canel, would you look for the cheapest dentist in town, or would you look for a reputable dentist, who would work hard to minimize the pain, and get you through surgery and recovery as quickly as possible?
You have to decide what is more important with your mortgage loan - service or price.
When is a lower rate not a lower rate?
When the lender has priced the cost of buying down the rate from the market rate into the loan costs without disclosing the discount points associated with the lower rate. This ends up looking like a lower rate with high fees mortgage. Because it can be very difficult to see when this is happening, it is very important that you connect with a trustworthy mortgage consultant. You will always have the option of buying down an interest rate with any lender - so a lower rate is always an option with a lender who provides good service.
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