Mortgage Monday: How Is Your Mortgage Rate Determined?

How Is Your Mortgage Rate Determined?

The most important part of obtaining a mortgage is getting the best interest rate possible. For most home owners this means securing the lowest, fixed-interest rate available.

Many home owners rely on their bank or mortgage lender to get them the best rate. Most do this without researching mortgage rates or lenders. Before you sign for that mortgage do some research into interest rates and understand how interest rates move and why. A change in rate of a mere .125% to .25% could mean a savings of thousands of dollars each year. So isn’t it worth it to know why rates move? Wouldn’t it be wonderful if you could see a lower rate coming before it changed?

By watching the 10-year Treasury Bond market you will be watching the best indicator of whether the interest rate on your new mortgage will go up or down. Why? Most mortgages are packaged as 30-year products, but the average mortgage is paid off or refinanced with in 10 years. So the 10-year bond market is a good indicator to measure interest rate changes.

So how will you know if rates are going up or down? When bond rates go up, interest rates go up as well. When the bond rate goes down, so will interest rates. By watching the bond market you will get educated on the best measure of interest rate rise and fall, and will be prepared to “lock” in your rate at a good rate for you.

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