How to Better Understand Mortgage Rates

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Did you know that mortgage rates are determined by the supply and demand for mortgage bonds in the bond market?


In the United States, when a borrower gets a mortgage the lender gets money from Fannie Mae or Freddie Mac or other "securitizers". Securitizers get their money by issuing bonds to bond investors.

The Fed and Mortgage Rates

After the housing crash in 2008, the Fed began buying bonds to drive down interest rates.  Currently, the Fed owns over $1 Trillion in mortgage bonds. If the Fed stops buying mortgage bonds, mortgage rates could increase. Recent statements from the Fed indicate that sometime within the year they will slow or stop purchasing bonds to normalize rates. 

While the Fed has hinted at a stop this year, the timeline is subject, as it has changed in the past, as new economic information comes to light.

Economic Trends to Watch

  • Inflation: bond investors and the Fed watch this report to determine whether to buy, sell or hold mortgage bonds

  • Jobs: bond investors and the Fed watch the jobs report and unemployment number to see if the economy is getting better - based on that information they decide whether to buy, sell or hold mortgage bonds

  • Supply and Demand in Bond Market: interest rates could go up and the demand for bonds could decrease if the Fed stops or slows down purchase of bonds

Keep an eye on economic news and announcements from the Fed to watch what is happening in the market and how changes affect mortgage rates over the coming months.

Please Note: This article is provided for illustrative purposes only. It is not an offer or commitment to lend money, and it is not an advertisement for a specific mortgage or a specific interest rate. Contact me to run the numbers for your situation.