My New Blog

WHAT CAUSES HOME MORTGAGE RATES TO FLUCTUATE?

There are many different factors which affect Home Mortgage Rates.  The primary two (2) factors being the Cost of Funds Index (COFI - the amount of interest banks pay to depositors on CDs and other accounts from which they draw the funds to loan to mortgage holders) and the London Interbank Rate (the amount of interest a bank pays another bank to borrow money)

There are a number of other factors, however, when looking at how interest rates are determined.  For example, with a high number of foreclosures, banks will commonly increase interest rates to compensate for the losses they incur on those foreclosures.  Other economic factors such as unemployment and the consumer price index (cost of goods) can have significant impacts.  One of the more subtle indicators not generally reported on is what types of accounts people move their money into.  For example, if a large majority of people are moving their funds from lower-interest-bearing accounts such as a savings account into a higher-yield CD, the impact can be attributed to the COFI and interest rates will rise.

SO WHEN IS THE BEST TIME TO LOCK INTO A MORTGAGE RATE?

It's very difficult to sit and watch the various mortgage rates change and then just lock in when the rates are at their lowest.  On any given day, mortgage rates can jump around, but not usually very drastically.  Speaking with your lender is important.  Economic indicators will vary month-to-month dependent upon the reports on the indicators listed above and interest rates will respond accordingly.  Locking in when rates are at a lower rate isn't nearly as important as making sure you're able to manage the monthly payments.

On a $250,000 home, the difference between 5.00% and 5.25% is about $30.76 per month.  Over the life of that 30-year fixed-rate mortgage that will definitely have an impact.  But in terms of your monthly payment, it won't make a lot of difference.  REMEMBER:  You can also ask your lender about buying-down points.

Make sure you watch the rates and specifically with your lender's organization.  See how they fluctuate.  But don't hesitate too long.  As the economy slowly turns around, you can expect indicators to start turning around and interest rates in-turn going up.

Sources:
FHLBSF.com
morgage101.com