To better understand how and why mortgage rates rise and fall, it is important to know where the source of the mortgage funding comes from. Generally, mortgage money comes from different sources like bank deposits or money of investors generally called capital markets. Capital markets, on the other hand, are financial markets that involved institutions that deal with securities and this is also where investors purchase securities.
But then again, mortgage backed securities compete against other long-term so lenders will have to adjust homes loan rates to make the return on Mortgage Back Securities competitive relative to other securities.
Why do you think 30 year mortgages are priced using the yield on 10 Treasury notes? US Treasury notes are actually the point of reference for many securities along with Mortgage Backed Securities. Moreover, these are supported by the "full faith and credit" of the United States.
So if lenders raise mortgage rates so they can keep Mortgage Backed Securities competitive with Treasury notes, this just means that the yield on Treasury notes has increased.
The value of interest payments paid at a yearly interest, is reduced by inflation. Thus, long-term bond holders don't like inflation. In addition, inflation is the major reason why bond prices rise or fall. Inflation happens when prices increase so money loses its value. You will notice that the inflation rate is high when the economy is good and employment rate is high.
Generally, bond prices and bond yields are inversely proportional to each other. That is, when bond prices go down, yield prices go up. Thus, mortgage rates will go up when bond prices go down if mortgage rates track the yield on US Treasuries.
Jobs reports, home sales, and other figures regarding the current status of the economy can move mortgage rates significantly. Likewise, employment, homes sales, and consumer confidence are just some of the other factors that affect mortgage rates. This is the reason why mortgage rates are vulnerable to economic activities compared to treasuries. Treasuries, on the other hand, are considered the safest investment for the reason that some buyers may lose their jobs anytime which can stop them from paying their Baltimore Mortgages payments.
But then again, mortgage backed securities compete against other long-term so lenders will have to adjust homes loan rates to make the return on Mortgage Back Securities competitive relative to other securities.
Why do you think 30 year mortgages are priced using the yield on 10 Treasury notes? US Treasury notes are actually the point of reference for many securities along with Mortgage Backed Securities. Moreover, these are supported by the "full faith and credit" of the United States.
So if lenders raise mortgage rates so they can keep Mortgage Backed Securities competitive with Treasury notes, this just means that the yield on Treasury notes has increased.
The value of interest payments paid at a yearly interest, is reduced by inflation. Thus, long-term bond holders don't like inflation. In addition, inflation is the major reason why bond prices rise or fall. Inflation happens when prices increase so money loses its value. You will notice that the inflation rate is high when the economy is good and employment rate is high.
Generally, bond prices and bond yields are inversely proportional to each other. That is, when bond prices go down, yield prices go up. Thus, mortgage rates will go up when bond prices go down if mortgage rates track the yield on US Treasuries.
Jobs reports, home sales, and other figures regarding the current status of the economy can move mortgage rates significantly. Likewise, employment, homes sales, and consumer confidence are just some of the other factors that affect mortgage rates. This is the reason why mortgage rates are vulnerable to economic activities compared to treasuries. Treasuries, on the other hand, are considered the safest investment for the reason that some buyers may lose their jobs anytime which can stop them from paying their Baltimore Mortgages payments.
About the Author:
Want to buy Homes For Sale in Golden Colorado? Do your homework first and speak directly with your lenders to determine the best mortgage option for your Las Vegas Condos For Sale to help you clarify matters on loan amounts, mortgage qualification, and affordability. They know when is the best time to buy a property given the rise and fall of mortgage rates.
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