What Does History Tell Us About Mortgage Rates? [mortgagedealstips.blogspot.com]
Question by Nathan T: How are mortgage interest rates determined? What I mean by that is I assume there is a formula which banks use to figure out what mortgage rates to offer a customer based on prime rates, customers credit history, size of mortgage, etc... Does anyone know how this process works and the specific formula/methodology used? thanks in advance! Best answer for How are mortgage interest rates determined?:
Answer by HuaracheKid
In general, mortgage rates are determined by the bond market, the 10 yr. treasury to be specific. Different lenders use different formulas - there isn't one magical formula that all lenders use. Also, it depends if the lender plans to keep the note or sell it to another investor. If it is sold, the lender has to follow the buyer's guidelines and doesn't have as much flexibility with determining interest rates. The rate depends on the type of loan too. Rates for 1st mortgages are different from 2nd mortgages and equity lines. Again, different lenders use different formulas.
Answer by Rush is a band
You hit a lot of key ones, but there are a few more. Credit history, prime rate, size of the loan, DEBT-TO-INCOME ratio, Loan-to-value ratio, etc. No bank would publish this info. It is part of their competitive advantage... good luck!
Answer by Dale H
Rates are determined by investors in the secondary market. Most loans are originated for sale to Fannie and Freddie so they rates that anyone can offer depends on what Fannie and Freddie can afford to offer on a program (e.g. 30 year, 15 year, etc.) which in turn is driven by what their investors require for a return/yield on their money. The link below tells you what Fannies investors are requiring roughly. http://www.bloomberg.com/apps/quote?ticker=MTGEFNCL%3AIND Then the Fannie/Freddie have to add a spread to that in order to make any money. The link below would represent a "par" rate based on delivery dates for various Freddie programs: http://ww3.freddiemac.com/ds1/sell/sffrny.nsf/frmDisplayRNY?OpenForm Then, a lender either has to charge fees or offer a slightly higher rate in order to make any money. Today, we were offering 6.875% with closing costs of $ 350 in our market. Of course this conversation does not address the delievery fees required by the agency programs based on credit scores, loan to value, transaction type and occupancy. These delivery fees will add to the closing costs or increase the rate or both if the delivery fees cannot be covered by increasing the rate. Home equity and portfolio programs are priced by individual banks and there is no single methodology or formula. If they are lending there own money, they can price there programs how ever they like. There is a similar secondary market for government programs, Ginniemae, which operates a lot the same as the secondary market created by Fannie and Freddie. The big difference is that these are owner occupied programs and there are not as many delivery fees as with the Fannie and Freddie programs. I hope I have helped to illuminate the subject without over complicating things.
Fed moves to create liquidity in secondary market - rates coming down
mortgagedealstips.blogspot.com Fed Moves to Reduce Mortgage Rates to Historic Lows
 In most financial markets history does, in fact, repeat itself.  In most industrialized stock markets history has repeated itself over and over.  Bull and bear markets seem to coincide with specific events that relate very closely to past events.  The problem with comparing this to the mortgage industry is that there are no hard facts about the distant past.  Mortgage rate survey data has only been collected since 1971 and the entire housing industry has drastically changed over the last 80 years. Â
When looking at historical mortgage rates, it is quite obvious that the current long term trend is down. Â During the last major recessionary period of the early 1980s mortgage rates peaked at 17.5%. Â Since that time, rates have steadily declined to their current levels of today; around 4.8%. There have been upticks along the way, but the overall trend is down.
 At one point, there is going to be a bottom in mortgage rates which leads to a steady increase.  It is highly unlikely that rates will ever get close to 17.5% again, but if history repeats itself, they are going to have to increase well above today's historically low levels.If we know history is likely to repeat itself, now might be the best time in many of our lifetimes to buy a home or refinance.  Although many Americans are in dire straights financially, this is an opportunity that cannot be passed up.  It is alluring to try to predict the exact bottom of mortgage rates, but when looking at the larger picture of mortgage rate history, now is the best time to buy.
More What Does History Tell Us About Mortgage Rates? Articles
