Rate Sheets

What makes mortgage interest rates go up and down?

Is it the Fed's cutting the interest rate?

Is is 10 year t-bills?

It is actually the value of Mortgage Bonds on any given day (and often at any given hour) that makes mortgage interest rates go up or down. If the value of Mortgage Bonds go higher then the mortgage interest rates offered by lenders to the public go lower.

Below is a chart of the daily trading of Fannie Mae Mortgage Bonds. The chart depicts Japanese Candlesticks as a method of plotting the graph. The Red Candlesticks mean the market opened at the top and fell in price to close at the bottom of the candlestick. Therefore, the Mortgage Bond prices declined in value and the payout to the mortgage brokers also declined (due to less value for the Mortgage Bonds).

The Green Candlesticks mean the market opened at the bottom and rose in price to close at the top of the candlestick. Therefore the Mortgage Bond prices increased in value and the payout to the mortgage brokers also increased (due to more value for the Mortgage Bonds).

The end result to the borrower is that when Mortgage Bonds go up (Green) then mortgage interest rates offered go lower. However, if the Mortgage Bonds do down (Red) then the mortgage interest rates offered go higher.

We see that the Mortgage Bonds have moved higher in price in the last two weeks of November. This has caused a dramatic drop in mortgage interest rates. (Mortgage interest rates react inversely to Mortgage Bond prices)

Should the Mortgage Bonds [depicted on the chart below] fall in value further, then the mortgage interest rates will go higher. However, there is a good level of support at S1 and S2 that will probably hold Mortgage Bond prices and keep mortgage interest rates from going much higher. Anything is possible these days and having the best possible credit scores means getting the best possible terms on your mortgage financing.

There are far too many factors that affect why traders and investors will buy Mortgage Bonds up higher or sell them lower to discuss here. Sufficient to say that the reality is that the public has no control over the mortgage interest rates because the public has no liquid market to participate in the buying and selling of Mortgage Bonds (unlike Treasury issues). We can only watch the Mortgage Bonds trade by the banks and other large investors and see the end result. Call your loan officer today!

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