Mortgage Rate Trends You Should Know
Mortgage shoppers should know the importance of keeping up with mortgage rate trends during the shopping and application process. There are a few trends that can save you a ton of money when it comes to locking in a rate.
A trend is defined as a general direction in which something is changing…a tendency, if you will. I am going to show you a few “insider” tendencies when it comes to mortgage rates so you can lock your rate at the most opportune time.
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Mortgage Rate Trend #1
Mortgages trend higher on a Friday.
Mortgage rates have a tendency to get lifted on Friday regardless of whether the market calls for it or not. Avoid locking your rates on any Friday.
Here’s why:
Mortgage rates are loosely tied to other fixed rate investments like Treasury bonds. US Treasury bonds are believed by the markets to be “as good as gold” or risk free to say it another way. So when investor fear putting their money anywhere else (ie. stocks, commodities, etc.) yet still want to earn a return however meager, they buy Treasury bonds.
And before we go further, let’s clear up some confusion about the Fed Funds rates or Prime rate and mortgage rates. They are not tied together. For more on that click here.
If the demand for bonds is high, the rate the bond pays drops. If the rate bonds pay drops, so does the rate mortgage backed securities pay…and even thought it’s not quite that simple, mortgage rates come down.
The reason Friday seems to be a day the bankers “forget” the market is because they don’t know what the weekend will bring. If there is “good” economic news made over the weekend like a good jobs report or exports are up, investor will want to dump the bonds and move to stocks or commodities. This will mean rates will have to be raised and it’s seems they all think that it is better protection if they do that on the previous Friday.
The reverse is also true. Which brings us to…
Mortgage Rate Trend #2
Mortgage rates trend down after a sizable natural disaster or political upheaval.
Say we turn on the news to find out that there is an oil spill, tsunami, or earthquake that just occurred. This will impact mortgage rates almost immediately.
What will happen as you’ve probably already guessed is rates will improve. When investor move their money out of risky investments and into US Treasury bonds this is call a “flight to quality” or a “flight to safety”. Look for any big negative news story to trigger a flight to quality and take advantage if you can. Many investor like to wait out the negative events by sitting on the sidelines…and moving their funds from stocks to bonds is how they do that.
Locking before versus after a “flight to quality” could be costly. I’ve seen a half a percent in the rate difference in the past. Nobody likes disasters but you will have this mortgage for many years and a .5% rate drop could save you $10,000′s in needless interest if you simply stay abreast of current events and know the trends.
Mortgage Rate Trend #3
Mortgage rates trend higher when the stock market is in a rally.
As we discussed above, what is good for the stock market is usually bad for mortgage rates. So if you get an urgent phone call from your loan officer begging you to lock in a rate right now, click over to Bloomberg or CNBC and find out what the stock market is doing. You may find more often then not, stocks are on the upswing. He maybe trying to get you to lock the worst possible time.
On the flip side, if you tune into the stock market (which you should be doing daily if you have an unlocked loan in process) keep your eye out for the opposite occurring. Say the DOW is falling like a rock don’t expect your loan officer to call you…you call him!
Like all “tendencies” these three insider mortgage rate trends are not true 100% of the time. But they are true enough to be aware of and to make locking decisions by.
Good Luck!
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Author: Rob K. Blake
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