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Mortgage Rates & Market Insights

04/12/24

Dive into the real-world of mortgage rates right here 🌍 – no fluff, just facts πŸ“Š. This data is based on live National averages from Freddie Mac, The Mortgage Bankers Association, Optimal Blue and others.Β 

This data is not the cheesy clickbait you see on Zillow and Lending Tree. This is the real deal!

Remember, these national rate averages include all kinds of situations – from folks buying down their rate to others with credit score issues.Β  We skip the “lowest rate” advertising gimmick because everyone’s situation is unique. Instead, we show you the true, minute-by-minute pulse of the market .

And yes, rates can change faster than the weather forecast in Colorado ⚑. That’s why we also provide you with MBS and Treasury Data – to keep you in the know . Stick with us for the straight-up, no-nonsense rate info.

Live National Interest Rates

Todays Rate Trends

Live MBS & Daily Market News

Dive into the real-world of mortgage rates right here 🌍 – no fluff, just facts πŸ“Š. This data is based on live National averages from Freddie Mac, The Mortgage Bankers Association, Optimal Blue and others.Β 

This data is not the cheesy clickbait you see on Zillow and Lending Tree. This is the real deal!

Remember, these national rate averages include all kinds of situations – from folks buying down their rate to others with credit score issues.Β  We skip the “lowest rate” advertising gimmick because everyone’s situation is unique. Instead, we show you the true, minute-by-minute pulse of the market .

And yes, rates can change faster than the weather forecast in Colorado ⚑. That’s why we also provide you with MBS and Treasury Data – to keep you in the know . Stick with us for the straight-up, no-nonsense rate info.

Live National Interest Rates

Live MBS & Daily Market News

Want to Learn More About Interest Rates?

Quick Education on MBS and Mortgage Rates

Mortgage-Backed Securities (MBS): Understanding the Basics

Mortgage-backed securities, or MBS, might sound complex, but they’re really just about investing in home loans. Let’s break it down.

First, let’s talk about bonds. When someone issues a bond, they’re borrowing money. The investor pays them upfront, and then gets paid back over time with interest. It’s like lending someone $100,000 and charging them a little extra for the privilege of getting your money back slowly.

Now, MBS are similar. They involve mortgages, which are like bonds where the homeowner is the borrower. Investors can buy these mortgages, but there’s a catch. Owning just one or a few mortgages is riskier than owning many. Here’s why:

  1. Default Risk: The homeowner might not be able to pay back the loan.
  2. Extension Risk: The homeowner keeps their mortgage for a long time, especially if interest rates are rising. This can tie up the investor’s money in a less profitable way.
  3. Prepayment Risk: The opposite of extension risk. Here, the homeowner pays off the mortgage early, usually by refinancing or selling the house, which cuts short the investor’s profit.

In the U.S., most loans are protected against default risk by agencies like Fannie Mae or Freddie Mac. They guarantee that investors will get their principal and interest, even if the homeowner can’t pay.

The real worry for investors is prepayment risk. If they’ve paid extra for a mortgage and then rates drop, leading to early refinancing, they lose money.

Investors try to balance these risks. They want interest rates that are low enough not to be paid off quickly but high enough to be profitable. They manage this by owning multiple loans and understanding the chances of loans being paid off too soon or too late.

Let’s simplify it. Imagine 20 people each with an orange. 19 are delicious, but one is terrible. You wouldn’t want to risk getting the bad orange, right? In investing, it’s similar. Instead of betting on one mortgage, investors combine many. This spreads the risk, like mixing all the orange juice together so no one gets the bad taste alone.

This is how MBS work. By pooling multiple loans, risks like the ‘bad orange’ are evenly distributed.

The MBS market is crucial. It sets the value of mortgages, impacting mortgage rates. In the big leagues of MBS, loans are guaranteed by government agencies. These guarantees mean these MBS often sell at higher prices.

Lastly, there’s the TBA-MBS market. Here, massive amounts of MBS are traded efficiently, without getting bogged down in the details of each loan. It’s like trading an entire stock index instead of individual stocks, making it much easier and quicker for investors.

In summary, understanding MBS helps in grasping how mortgage rates are set and the importance of balancing risks in mortgage investments. It’s all about finding the sweet spot in investment returns and spreading out the risks, just like mixing orange juice!

Understanding Mortgage-Backed Securities and Treasuries in Lending

Hey there! Let’s dive into the world of lending, focusing on how Mortgage-Backed Securities (MBS) and Treasuries impact mortgage rates. This is pretty important stuff if you’re looking into real estate and finance in Colorado.

MBS: The Big Player in Rate Sheets
First up, Mortgage-Backed Securities. These guys are the main influencers on lenders’ rate sheets. Here’s the deal: if MBS prices go up or down by half a point, the pricing on rate sheets will likely shift in the same direction. This doesn’t always match perfectly, but big changes in MBS prices usually lead to lenders adjusting their rates.

One interesting thing to note: lenders are quicker to raise rates (negative reprice) than to lower them (positive reprice). The bigger and faster the MBS price movement, the more likely lenders will adjust their rates. For example, a small, gradual drop in MBS prices might not cause much stir. But a rapid, large drop? That’s when you’ll see almost every lender updating their rates.

Treasuries: The Early Indicator
Now, let’s talk about 10yr US Treasuries. While they don’t directly set mortgage rates like MBS, they often move in the same direction and are a good early indicator of what’s

happening in bond markets. Since Treasuries are active in Asian and European trading hours, they give us a sneak peek into the bond market’s day ahead. They’re pretty reliable in showing significant overnight shifts, even before rate sheets are released.

So, there you have it: a quick look at how MBS and Treasuries play a role in lending. Keeping an eye on these can give you a heads-up on where mortgage rates might be heading. Stay informed, and happy house hunting!

Ever wondered why the financial world pays so much attention to 10-year Treasury yields, especially when mortgage-backed securities (MBS) seem just as important? Here’s a straightforward explanation.

10-Year Treasuries Lead the Way

Think of 10-year Treasuries as the leader and MBS as the follower. Although MBS might react differently at times, generally, they follow the lead of 10-year Treasuries. This is similar to a dog following its owner – sometimes pulling ahead or lagging behind, but ultimately going in the same direction.

Why Rates Over Prices?

Another key point is how these securities are traded. 10-year Treasuries are traded based on rates, while MBS are traded based on prices. For most people, including professionals in the mortgage industry, understanding changes in rates is easier than deciphering movements in MBS prices. Also, Treasury rates are available in real-time, giving a quicker insight into market movements, unlike MBS rates that depend on lender repricing.

Global Trading and Liquidity

10-year Treasuries are not just limited to the U.S.; they are traded worldwide, even overnight. They are also actively traded in the futures market, providing a level of liquidity and price discovery far superior to that of MBS.

A Purer Bond Market Reflection

Treasuries are often seen as the purest representation of the bond market’s mood. They are considered ‘risk-free’ in terms of default risk, unlike MBS, which are virtually risk-free (remember, this is from a default perspective). Furthermore, Treasuries aren’t influenced by consumer behaviors that affect MBS, such as refinancing or foreclosures.

In Summary

When you want to understand the big picture in interest rate trends, especially those affecting MBS and mortgage rates, 10-year Treasuries are your go-to. They are the standard against which other movements are measured – the backdrop to MBS’s details.

However, remember that exceptions do occur. Just like a boat can drift away or a child can color outside the lines, the relationship between MBS and Treasuries can deviate, especially during significant events. In such cases, it’s crucial to monitor these departures closely for a comprehensive understanding of the interest rate landscape.

When it comes to understanding and advising on rate movements in real estate, it’s crucial to focus on what we know today rather than trying to predict the unpredictable future. Sure, making predictions can be fun, but they shouldn’t influence critical decisions about whether to lock in rates or float them.

Here’s a key point to remember: Decisions based on the fluctuating prices of Mortgage-Backed Securities (MBS) and market analyses are only accurate on a daily basis. Once the day’s chance to lock in a rate is passed, there are no guarantees about what tomorrow will bring. The most effective use of real-time MBS prices and analysis is to make well-informed decisions on the very day. If you think you can outsmart the market consistently over longer periods, you might want to consider a career in day trading! But remember, even the experts who were once right can be wrong in the future.

A more practical approach than trying to predict market trends is understanding where the market stands now, in relation to both short-term and long-term trends. It’s about identifying the current risks and opportunities. This understanding doesn’t come overnight. There’s no single book or seminar that will turn you into an expert immediately. However, by engaging with daily updates, exploring the knowledge base, and asking questions whenever they arise, you’ll find your understanding and ability to communicate this knowledge growing significantly.

In summary, while navigating rate movements in real estate, the focus should be on current market understanding and the identification of immediate risks and opportunities, rather than on uncertain predictions. Engage actively with available resources and stay informed to make the best decisions in this dynamic field.

Understanding the Money Creation Process

Ever wondered how banks create money? It’s not as mysterious as it might seem. Let’s break it down in a way that’s easy to understand.

Banks: The Money Lenders

Banks like JP Morgan Chase, Citi, and Bank of America aim to increase their net worth. They do this by lending money at rates higher than what it costs them to borrow. However, lending comes with risks. To ensure the safety of their deposits, banks maintain extra cash, known as reserves, in their vaults.

What Banks Hold

Banks hold three main types of assets:

  1. Liquid Assets: These include things like U.S. Treasury bills.
  2. Investment Securities: Examples are U.S. Treasury bonds and Agency Mortgage-Backed Securities (MBS).
  3. Loans: Money lent to both corporations and consumers.

The Role of the Federal Reserve

The Federal Reserve, or the Fed, plays a big part in this. They provide services to commercial banks and control how much money these banks can lend. Essentially, they regulate the amount of money in circulation.

How Does the Fed Do This?

The Fed has three tools at its disposal:

  1. Required Reserve Ratio: This is the minimum amount of deposits that banks must hold as reserves. When banks have more than this minimum, they can lend out the extra, creating more money.
  2. The Discount Rate: This is the interest rate at which banks can borrow reserves from the Fed. Right now, this rate is quite low, making it cheaper for banks to borrow and lend more.
  3. Open Market Operations: This involves buying or selling government securities. For instance, when the Fed buys MBS from banks, it gives them more reserves to lend out.

The Cycle of Money Creation

Here’s the cycle: The Fed sets reserve requirements and the discount rate. Banks borrow excess reserves at low rates and lend them to businesses and consumers. These borrowers then deposit money in other banks, increasing the money in circulation. They also make interest payments to the bank they borrowed from. This cycle continues until the banks have used up all their excess reserves, unless the Fed buys more assets in the open market.

So, there you have it. The process of money creation is a cycle controlled by the Federal Reserve, with banks playing a crucial role in lending and creating more money in the economy.

Have you ever heard of ‘basis points’ when talking about mortgages? Let’s break it down in simple terms. A basis point is a fancy way of saying one-hundredth of a percent. So, 1 basis point equals 0.01%, and 100 basis points make 1%.

In the world of mortgages, basis points are super useful for talking about changes in interest rates. Since mortgage rates often change by small amounts, using basis points makes it easier to be precise.

For instance, if a lender says the mortgage rate increased by 25 basis points, it means the rate went up by 0.25%. Understanding this can help you better grasp the changes in your mortgage payments or when you’re shopping for a new mortgage.

Let’s put the concept of basis points into a real-life scenario. Imagine you’re looking at a mortgage with an interest rate of 4%. One day, the lender announces that they are increasing the rate by 50 basis points. What does this mean for you?

In simple terms, a 50 basis point increase means the interest rate on your mortgage will go up by 0.50%. So, if your original rate was 4%, the new rate will be 4.50%. This small change can make a noticeable difference in your monthly mortgage payments.

For example, on a $300,000 mortgage with a 30-year term, the monthly payment at 4% interest is about $1,432. With the increase to 4.50%, the new payment becomes approximately $1,520. That’s an $88 difference each month, just from a 50 basis point increase!

So next time you hear about basis points in the context of mortgages, remember it’s just a more exact way of talking about small changes in interest rates!

Have you ever heard of the “Guaranty Fee,” or g-fee? Let’s break it down in simple terms. The g-fee is a charge by Fannie Mae and Freddie Mac for securitizing a loan into a Mortgage-Backed Security (MBS) pool. Think of it as a mix of income for these Government-Sponsored Enterprises (GSEs) and a form of credit insurance.

Why the Fee?
This fee helps build up reserves to ensure that investors in these agency MBS get their principal and interest payments on time. In essence, it’s a safeguard to keep the financial system stable.

Fannie Mae explains it like this: They promise to make timely payments of interest and principal to the certificate holders. This responsibility lies solely with them and is not backed by the U.S. government.

How Much is Charged?
The fee amount is taken out of the monthly principal and interest payments made by the borrower. But here’s something interesting: larger lenders often negotiate lower fees due to the volume and performance of their loans with Fannie Mae and Freddie Mac. This can result in more competitive loan pricing.

Paying the Fee
You can choose to pay these fees upfront in one go. Fannie Mae and Freddie Mac update the cost to “buydown” a guaranty fee monthly.

A Matter of Risk and Pricing
Ever wondered why loan pricing isn’t always as competitive as hoped? It often boils down to the borrower’s creditworthiness. If a borrower’s credit seems less reliable, the GSEs might charge more to guarantee their loans, impacting the loan’s interest rate.

The Bottom Line
Fannie Mae and Freddie Mac’s guarantee fees directly affect the interest rates of loans. It’s a key component in the world of real estate and finance, impacting both lenders and borrowers.

So, the next time you hear about the g-fee, you’ll know exactly what it’s all about and how it plays a role in your loan’s cost.

Mortgage rates might seem complex, but they’re easier to understand than you think. Here’s a quick breakdown of the essentials:

The Basics:

  1. Mortgage Rates and Investor Demand: Investors look at mortgages like bonds, offering a stable return with lower risk. The demand from these investors largely determines mortgage rates.
  2. Risk and Return: More risk (like lower credit scores) means investors expect higher returns. So, riskier scenarios lead to higher mortgage rates.

Where Do Mortgage Rates Come From?
At their core, mortgages are quite similar to bonds. Both are ways for an investor to lend out money and get paid back over time with interest. The bond market’s movements often mirror changes in mortgage rates. However, lenders also adjust rates based on specific factors like your credit score or the size of your down payment. These adjustments don’t change daily, so your individual rate is mainly influenced by the bond market.

A Deeper Dive:
Investors choose to put their money in mortgages for a competitive rate of return, compared to other investments like stocks or currencies. The most direct comparison for a mortgage is a bond. However, unlike bonds issued by countries (like U.S. Treasury notes), mortgages are given to individual consumers. This adds unpredictability since consumers can choose to refinance or sell, affecting the longevity of the mortgage.

Why Early Repayment Matters to Investors:
Investors earn through interest over time. Early repayment of the mortgage (like refinancing or selling the home) can cut short these interest payments. For example, an investor might pay $104,000 for a $100,000 mortgage loan, aiming to profit from the interest. If the borrower pays off the loan early, the investor could lose money, not having earned enough interest to cover the initial premium paid.

Securitization: Spreading the Risk:
To manage the risk of early repayments, investors often buy several mortgages together or parts of a portfolio. This process, called securitization, spreads the risk across multiple loans.

In summary, mortgage rates are influenced by investor demand and perceived risk. They’re similar to bonds but have unique aspects due to the involvement of individual consumers. Understanding these factors can demystify how mortgage rates are set and why they vary.

Ever wonder why mortgage rates change so often? Let’s dive into this without getting too technical.

What Drives Mortgage Rate Changes?
Mortgage rates aren’t just random numbers; they’re influenced by a mix of market forces and the nitty-gritty of how mortgage lending works.

Market Forces at Play
Think of the mortgage world like a big market where loans are bought and sold. The US government, for example, borrows money by selling bonds. These bonds set the stage for how other debts, like mortgages, are priced.

When enough similar mortgage loans are pooled together, they form a mortgage-backed security (MBS). Investors buy these MBSs, impacting the rates that lenders offer. If the bond market is doing well, MBS prices might rise, potentially leading to lower mortgage rates.

Operational Considerations
Lenders also have their own operational stuff to consider, like how much profit they want and their capacity to lend. For example, if a lender’s running low on funds, they might hike up rates to slow down business. Or, if they’re swamped with loan applications, they might do the same to manage the workload.

The Big Picture
So, different lenders have different rates because they all manage their operations differently. But, the price of MBSs – like the steel in a car – largely determines the cost of mortgages. If the MBS market is hot, mortgage rates might drop, and vice versa.

In a nutshell, mortgage rates change due to a blend of market trends and how lenders run their business. It’s a bit like shopping for cars – the price depends on both the cost of materials and how each manufacturer operates.

Now you know a bit more about the ups and downs of mortgage rates. Keep this in mind next time you’re in the market for a home loan!

What is a Mortgage Rate Lock?
A mortgage rate lock is an agreement between you, the borrower, and the lender about the interest rate of your mortgage. Once locked, this rate doesn’t change, even if market rates do. This lock also sets a deadline for when the mortgage needs to be closed and funded.

Choosing the Lock Time Frame
Lock periods can vary. While 30 days was common, times have stretched to 45 or 60 days due to regulatory changes. Shorter or longer periods are available too, such as 10, 15, 21, or 90 days. Sometimes, the lender decides the lock period without your input. In other cases, you can choose based on how quickly the loan process is expected to complete.

Why Lock Duration Matters
Longer lock periods typically cost more. The cost could be a higher rate or a change in upfront costs. It’s a balancing act between having enough time to close the loan and not paying extra for an unnecessarily long lock.

When to Lock Your Rate
Deciding when to lock is tricky. Locking early is safest but might not always be the most cost-effective. Since 1980, interest rates have generally fallen, but there have been sharp increases at times. If rates rise suddenly and you haven’t locked in, you might end up with a higher rate or unable to complete the mortgage process. This could be particularly problematic in purchases, where failing to complete could mean losing your earnest money deposit and the house.

Locking for Purchases and Refinances
In both purchasing and refinancing, it’s wise to lock in as soon as the monthly payment and time frame make sense. If a rate increase could affect your eligibility for the mortgage, locking is the best choice.

Extensions and Expirations
Sometimes, mortgages exceed their initial lock period. Most lenders allow extensions, usually at a cost. This cost varies, but often it’s the difference between the original lock period and the next one. However, if rates have risen significantly since the initial lock, you might face “worst-case” pricing, meaning higher costs than initially anticipated.

In summary, choosing when and for how long to lock your mortgage rate is a crucial decision. It’s about finding the right balance between giving yourself enough time to complete the process and not overpaying for a longer lock period. Always consider your financial situation and the potential risks before deciding.

Securitization and Mortgage-Backed Securities (MBS): Simplifying the Concept

Have you ever wondered how your mortgage impacts the broader financial market? Let’s break it down in a simple way: through the process of securitization and the creation of Mortgage-Backed Securities (MBS). This is a bit like turning a bunch of loans into a big, shared investment.

Securitization: Turning Mortgages into Bonds

Securitization is a process where individual mortgages are bundled together into a large pool. This pool then gets split into smaller parts that investors can buy. It’s like pooling risk: instead of one investor facing the entire loss if a mortgage is paid off early, the loss (or profit) is shared among many.

How Securitization Works

Imagine 20 investors each buy one mortgage. If one mortgage is paid off early, that investor loses out. With securitization, these 20 mortgages are pooled together. Now, if one mortgage is paid off early, the impact is spread out, reducing the risk for each investor.

Benefits of Securitization

  1. Lower Rates: By spreading out risk and making it more predictable, lenders can charge less.
  2. Standardization: Loans in a securitized pool have to meet certain standards, making them more uniform and easier for investors to trust.

Mortgage-Backed Securities (MBS): A Closer Look

MBS are essentially pools of these standardized loans. Think of it like buying a bag of tangerines where each fruit is the same. You know what you’re getting without having to examine each tangerine. Similarly, investors know what they’re getting with MBS.

Market Dynamics: The Tangerine Analogy

If there’s a surplus of tangerines, prices drop, and buyers are attracted. But if tangerines are scarce, prices rise, and buyers might hesitate. MBS work similarly. Their prices fluctuate based on demand, just like tangerines or any other fruit in the market.

Comparing MBS with US Treasuries

In the bond market, MBS are like tangerines, while US Treasuries are like navel oranges. Treasuries are extremely reliable, backed by the US government. The demand for one can affect the other, just like in a grocery store.

Securitization’s Impact on Mortgage Rates

Securitization makes mortgages behave more like standard bonds. So, changes in the broader bond market often reflect in MBS. Higher MBS prices mean investors are paying more, which can lead to lower mortgage rates. It’s all about the flow of money between the borrower and the investor.

Understanding securitization and MBS helps grasp the bigger picture of mortgage rates and their fluctuations. It’s a complex process, but at its core, it’s about sharing risk, standardizing products, and reacting to market demands, just like any other item we buy or sell.

“Dovish” and “Hawkish” are terms referring to central bank policies, like those of the Fed or ECB, or the policy stance of individual central bankers.
“Dovish” implies a friendlier, more accommodative approach, usually favorable for interest rates.
“Hawkish” means a stricter, less accommodative stance, often negative for interest rates but positive for the dollar.

Individual central bankers may lean mostly towards one stance but occasionally express views from the other. Some consistently maintain a hawkish or dovish position, while others may shift their stance over time. There are also centrists, who never strongly lean either way.

Have you ever wondered how the mortgage market in the U.S. stays stable and functional? A big part of this is thanks to something called GSEs, or Government Sponsored Entities. These are private corporations like FNMA (Fannie Mae), FHLMC (Freddie Mac), SALLIE MAE, and FHLB, which were established by Congress to keep the flow of money smooth in certain parts of the economy.

Specifically, for Fannie Mae and Freddie Mac, their role is crucial in the mortgage and housing markets. Unlike FHA sponsored GNMAs, the debt of these GSEs doesn’t have an outright guarantee from the government. However, there’s an implied guarantee which usually does the trick in keeping things steady.

How do they work? Well, Fannie Mae and Freddie Mac raise funds by issuing what are known as “direct obligations.” They then use these funds to invest in mortgage-backed securities (MBS) and whole loans. This investment is key because it helps maintain liquidity in the mortgage market. It makes sure that lenders and investors can keep doing their business without major hiccups.

There was a time when these GSEs were in a bit of trouble. During a period of serious turmoil and illiquidity in the markets, the U.S. Treasury stepped in and put the GSEs under conservatorship. This move was to support the markets and boost investor confidence.

In short, GSEs play a vital role in ensuring the U.S. mortgage market runs smoothly. They are the unsung heroes keeping the market stable and reliable for everyone involved, from lenders to investors.

Ever wondered how interest rates on different types of debts are determined? It all comes down to a concept called ‘yield spreads.’ Let’s break it down into easy-to-understand bits.

Firstly, the U.S. Government issues debt like Treasury bills, notes, and bonds. These are super reliable and are often labeled as ‘Risk Free.’ Now, because they’re so dependable, they set the standard for all other interest rates out there. That’s why we call them ‘benchmarks.’

Here’s where yield spreads come into play. Since other types of debt are riskier compared to these government securities, they need to offer something extra to attract investors. This ‘extra’ is a higher interest rate, which is the yield spread. It’s like a bonus for taking on more risk.

When we talk about ‘comparable’ in this context, we mean debts with similar time frames. For instance, if you’re looking at a 10-year municipal bond, you compare it with a 10-year Treasury note. If the municipal bond is offering an extra 2% interest compared to the Treasury note, we’d say it’s trading at +200 basis points over the 10-year Treasury.

Now, how does this relate to mortgages? Mortgage-Backed Securities (MBS) also have yield spreads. We compare the yield (or return) of an MBS with its benchmark, like a 10-year Treasury note. If the gap (yield spread) is small, it means the MBS and the Treasury note are pretty close in terms of what they offer. A bigger gap means a higher yield for the MBS compared to the Treasury note.

Why do these spreads change? It could be due to many reasons like supply and demand, or the perceived riskiness of the debt. In the mortgage world, if there’s high demand for certain Mortgage-Backed Securities and not enough supply, their yield spreads will likely become smaller compared to Treasuries.

So there you have it, yield spreads in a nutshell! They’re a key part of understanding how different types of debts compare to the super reliable government securities. Keep this in mind next time you hear about interest rates and investments!

Inflation and bonds are closely linked. Think of it this way: when you get a bond, it’s like getting a loan that you pay back over time. If inflation goes up, the money you pay back later is worth less. This makes a big difference in the bond market.

For example, say you borrow $1200 from me and agree to pay back $100 every month. If inflation causes everything to get more expensive, like my water bill, I might need $120 instead of $100 each month. This means I would have to charge you more for the loan because of inflation.

To measure inflation, we use things like the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE). These help us see how inflation changes bond prices and interest rates.

There are different types of inflation. ‘Demand pull’ inflation happens when a lot of people want the same thing, which can drive up prices. ‘Supply push’ inflation is when it costs more to make things, and prices go up because of that.

Producer-level inflation, measured by the Producer Price Index (PPI), also matters, but it’s not always as influential as other types of inflation. The way we understand inflation’s impact on the economy is changing, especially with big events like the global pandemic.

In short, inflation is important in the bond market because it affects how much loans cost and the interest rates. Understanding this can help you make smarter choices in the bond market.

First, look at the MBS Treasury chart on our β€œrates” page.Β  Then select the coupon you want.Β  We typically default on this to the most relevant for the market conditions.Β  But you can always make that call for yourself. Β Β 

The question is, how do mortgage lenders decide which Mortgage-Backed Securities (MBS) coupons to watch for changes in interest rates? It’s simpler than you might think!

The Key Indicator:
MBS Live, a go-to resource for lenders, highlights the most relevant coupon with a gold star. This coupon indicates the highest risk of intraday price changes. It’s important to note that this may not always align with the majority of new loans.

A Look Back at 2022:
For example, in 2022, interest rates rose significantly. The high rates meant lenders had to focus on lower coupons for daily cues, despite setting higher rates for new loans.

The Basic Rule:
Typically, interest rates are set 0.25% to 1.125% higher than the MBS coupon. So, if you’re quoting rates around 7.25%, and the market is at 7.125%, the 6.0 MBS coupon is your safest bet for tracking potential changes.

Understanding the Rate Difference:
Wonder why mortgage rates are higher than the MBS coupon? It’s due to two main deductions from the interest rate: the Guaranty Fee (to Fannie Mae/Freddie Mac) and the Servicing Fee. These fees reduce the final return for investors. For example, a 7.5% mortgage rate actually nets around 6.68% for the investor after these fees.

Choosing the Right MBS Coupon:
Lenders use this ‘net’ rate to decide which MBS coupon to choose. They often use Fannie Mae’s buyup/buydown grid to determine the most profitable option. For instance, placing a 6.68% rate into a 6.5% MBS coupon might yield a surplus interest, which can be profitable for the lender.

Quick Tips for Loan Officers:
Loan officers can also do a bit of detective work by comparing their rate sheets with the lowest available coupon on MBS Live. This comparison can give clues on which coupons are currently important in the market.

MBS Live: Your Go-To Guide:
MBS Live does most of this calculation for you, choosing the most relevant coupon daily. If the market is in a transition phase between coupons, MBS Live tends to focus on the lower coupon to stay on the safe side.

2022: A Special Case:
In 2022, lenders had to rely on less common, lower coupons due to the sudden spike in rates. This was a unique situation where standard practices were adjusted to suit the market conditions.

Conclusion:
Understanding MBS coupons doesn’t have to be complicated. By keeping an eye on MBS Live and understanding the basic principles, you can stay informed and make better decisions in the dynamic world of mortgage lending.

Ever wondered how folks buy big-ticket items like houses without having all the cash upfront? They use a loan, and a common type is a mortgage.

1. How Do Loans Work? Loans are pretty straightforward. If you don’t have or don’t want to spend all your cash on something pricey, you borrow it. This deal involves you (the consumer) and a lender. The lender gives you a big sum now, and you agree to pay it back over time. Think about car payments – that’s a type of loan too!

2. So, What’s a Mortgage? A mortgage is just a loan for buying a home. Like a car loan, it lets you own your home while paying it off. If you can’t keep up with payments, the lender can take back the home, a process called repossession. This way, the lender doesn’t lose all their money if someone can’t pay.

3. What’s in It for the Lender? Lenders aren’t just handing out money for fun. They make money from loans by charging interest. It’s extra money on top of what you borrowed, giving them a profit. You might have heard about 0% financing for cars, but that’s rare and usually just a sales tactic. With mortgages, interest and rates can get complicated, but don’t worry, we’ll cover that in future articles!

Mortgage rates may seem complicated, but they’re actually pretty straightforward once you break them down. Here’s a quick guide to understanding the basics:

  1. Two Types of Mortgage Rates: First, know that there are two mortgage rates. The ‘note rate’ is the interest on your loan amount, and the ‘effective rate’ includes certain upfront costs.
  2. APR – The Bigger Picture: The Annual Percentage Rate (APR) tries to show the effective rate. It’s the real cost of your loan per year, including interest and fees.
  3. Principal – What You Borrow: The principal is the amount you borrow. For example, if you buy a $200,000 home and pay $10,000 down, your principal is $190,000. This amount reduces as you make payments.
  4. Payoff vs. Principal: The payoff amount can be slightly higher than your principal due to interest accrued during the month.
  5. The Note Rate: This is the interest rate on your mortgage document. While it sets your monthly payment, it’s not the only cost involved.
  6. Upfront Costs Matter: These are fees charged at the start, like lender and appraisal fees. They add to the total cost of your mortgage.
  7. APR – Not Always Comparable: Lenders must quote the effective rate as APR, but calculations can vary, so it’s not always a perfect comparison tool.
  8. The Power of Choice: You can often choose between paying more upfront for a lower rate or less upfront but a higher rate over time.
  9. Scenario A vs. B: Understanding the trade-offs between different scenarios is crucial. For example, paying more upfront might mean lower monthly payments but takes longer to break even.
  10. Upfront Cost vs. Cost Over Time: Every rate quote has assumptions like credit score or upfront costs. Know these before deciding.
  11. Rolling In Costs: Instead of a higher rate, you can sometimes roll the costs into your loan balance, keeping the rate but increasing the loan amount.

Remember, there’s no right or wrong way to manage these costs. It’s all about what works best for your financial situation. Understanding these key concepts helps you make informed decisions about your mortgage.

APR vs. Interest Rate: What’s the Difference?

APR, or Annual Percentage Rate, is like the expanded version of your mortgage interest rate. It includes upfront costs, giving you a more complete picture of your loan’s cost. But here’s the catch: APR is based on human estimates and choices, which means it’s not perfect. Different lenders might calculate it differently, making it tricky to compare.

What About Prepaid Finance Charges (PFCs)?

PFCs are costs you pay just to get your mortgage, like a loan processing fee. They’re not necessarily bad or good; they’re just part of the process. Sometimes, these charges can be rolled into your loan, meaning you pay them off over time with a slightly higher interest rate.

Why APR Matters

APR is important because it gives you a better idea of the true cost of your loan, thanks to those PFCs. Lenders have to show you the APR by law, which is great in theory. But since they do their own math, the APR you see from one lender might not be the same as another’s. Some lenders might be more conservative with their calculations to avoid trouble with regulators, resulting in a higher APR.

The Bottom Line

So, what should you do? Don’t just take an APR at face value. The best approach is to look closely at the details. Compare what’s included in those upfront costs between different quotes. APR isn’t always an apples-to-apples comparison, so a bit of homework can really pay off.

Remember, understanding your mortgage’s APR is key to making informed financial decisions. Keep an eye on those details, and you’ll be better equipped to choose the right loan for your needs.

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