What Causes Mortgage Rates to Go Up?

It is amazing that houses are bought and sold across the country since it seems that one must be a genius to make sense of interest rates. Most people put their trust in their realtor or finance lender to make sure they are being financially taken care of. While this works for the most part, it is comforting to go into one of the biggest purchases of your life understanding the deal you are involved in and feeling that you understand the process of home mortgage lending and buying.

When you sign on the dotted line and take on a mortgage, an originator, usually a bank, loaned you the money for the purchase. The originator of the loan will then sell the mortgage on the secondary market. By not selling your loan, the originator keeps the interest you pay. If they sell the loan, they get all of their money back and have money to loan to another homebuyer.

Mortgage rates are determined by mortgage backed securities. A mortgage backed security is fancy terminology for assets that are paid by home owners. The interest you pay your lender for borrowing the money, combined with the interest of all of the other home owners creates a pool of money from which to make a return on your money (interest) as well as buy and sell stocks on the stock market.

The secondary market Investors want to make as much money as possible. If the economy is doing well, then they will make more money on your interest because you feel better about borrowing money. Investors wait to buy mortgages until they can get a higher return on the loan. This drives interest rates up. If they can't get a higher yield, they sell sooner in order to cut their losses, but sometimes can not find a buyer. This drives interest rates down.

The basic principle of the mortgage interest rate flux is this: lots of money in the mortgage backed securities pool means higher interest rates, less money means lower interest rates. While there are many factors driving interest rates, this seems to be the basic premise of a very complicated equation.

Trying to determine when to lock in to get the best interest rate is a tough game. Fortunately, interest rates don't move wildly back and forth. Generally they move by tenths to quarters of a percent over the course of a week. The difference in your mortgage payment from 6.25 to 6.5 may move your home loan payment up or down 50 dollars or so.

Using national news to determine the action you should take on interest rates is bad policy. By the time it is reported, the news is old and you should have taken action already. If you are trying to watch interest rates, researching on the internet is your best bet. Not to mention that while rates remain fairly steady over the course of a week, they can change slightly over the course of a day.

Mortgage calculators allow you to put in variables such as the amount of the loan, down payment and interest rate. Changing the interest rate by a quarter or half percent will calculate your mortgage payment with the potentially new rate you could pay tomorrow or the day after.

For the average consumer, the tools on the internet can provide you with some peace of mind on what your monthly payment is going to be. Because, in the end, once you have bought your house and all is said and done, your mortgage payment is all you really care about.

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