Understanding mortgage rates to help find the best home loan for you!
The lending industry changes mortgage rates on a daily basis. Having a better understanding of how mortgage rates are calculated will help you in your search for the best mortgage for your unique situation.
There are traditionally two types of mortgage loans offered by lenders. Mortgage loans with fixed rates that range from ten to thirty years and loans with adjustable or variable rates that are typically calculated on a thirty year loan term.
The biggest misconception regarding mortgage rates is how banks and lenders determine mortgage rates. The mortgage industry is a multi trillion dollar business, and borrowing money is very similar to how any other major commodity is purchased. A lender traditionally borrows money from a secondary marketplace and sells it to a consumer with a pre determined profit margin. In the case of mortgages, this would be a mortgage backed security or bond that is typically bundled with other mortgage backed bonds and sold in bulk. Therefore, most lenders typically have the same ability to buy and sell the mortgage bonds in the same market. The way lenders differentiate themselves is how they price out their loans to the consumer and how this is used to determine the mortgage rates that they offer. For example, some lenders may want to have a two point or two percent profit on every loan. They may achieve this by charging a client one percent up front, and making an additional one percent in selling the loan in the secondary market. The same profit could be obtained by charging the borrower nothing up front (lower closing fees) but offsetting this with a slightly higher interest rate. The secondary market changes the prices they are willing to pay lenders on a daily basis based on supply and demand and this is greatly influenced by what is going on with the economy. Therefore, lenders may change their interest rates daily or ever hourly depending on the market and volatility.
Find out what is moving the market this month, and what economic events could effect mortgage rates
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