Typically, when bond
rates (also known as the bond yield) go up, interest rates go up as well. And
vice versa. Don’t confuse this with bond prices, which have an inverse
relationship with interest rates.
Investors turn to bonds
as a safe investment when the economic outlook is poor. When purchases of bonds
increase, the associated yield falls, and so do mortgage rates. But when the
economy is expected to do well, investors jump into stocks, forcing bond prices
lower and pushing the yield (and mortgage rates) higher.
So a good way to
predict which way mortgage rates are headed is to look at the 10-year bond
yield. You can find it on finance websites alongside other stock tickers, or in
the newspaper. If it’s moving higher,
mortgage rates probably are too. If it’s
dropping, mortgage rates may be improving as well.
Conventional (Fannie
Mae/Freddie Mac and Non-Agency investors) and Government (FHA and VA) lenders
set their rates based on the pricing of Mortgage-Backed Securities (MBS) which
are traded in real time, all day in the bond market. This means rates or loan
fees (mortgage pricing) moves throughout the day, being affected by a variety
of economic or political events. When MBS pricing goes up, mortgage rates or
pricing generally goes down. When they fall, mortgage pricing goes up. Tracking
these securities real-time is critical. For more information about the rate
market, contact us directly. We are among few mortgage companies who have
access to live trading screens during market hours, in addition to pricing
software that compares the top wholesale lenders in the market for pricing
competition and comparison.
Q&A REGARDING RATE LOCKS
What is a rate lock?
A rate lock is a
guarantee from a mortgage lender that they will give a mortgage loan applicant
a certain interest rate, at a certain price, for a specific time period. The
price for a mortgage loan is typically expressed as “points” paid to obtain a
specific interest rate. Your VMG Loan
Consultant will show you several rates equating to optional buy-down or buy-up
(lender credits) to determine what pricing is most favorable for your
situation.
When do I lock an interest rate?
You’re in a position to
lock in an interest rate when your application is received, loan approved, and
purchase contract executed (or if a refinance immediately following
application).
How much does a rate lock cost and what if my lock expires?
VMG does not charge any
application or initial rate lock fees.
If the rate lock is going to expire, your Loan Consultant will discuss
the extension or re-lock options with you which may impact lender credits (if
applicable) or net costs vs. original lock terms. Each investor holds a specific lock policy
and calculation for any costs associated with lock extensions or re-locks.
What is a mortgage rate lock float down/renegotiation?
A mortgage rate lock
with the option to reduce the locked interest rate if market interest rates
fall during the lock period. A rate lock with a float-down option can provide
the borrower with security against an increase during the rate lock period,
while the float-down option allows the borrower to take advantage of a fall in
interest rates during the lock period.
Due to the large number of investors VMG works with, each carry a unique
rate lock renegotiation policy. The
option will only be exercised by the mortgagor after an internal adjustment to
price and if available as a benefit to the borrower. VMG always monitors pipeline for any
opportunities.
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