October 16th, 2017 3:48 PM by Robin Bain
Mortgage companies, Banks and Credit Unions are subject to potential
daily and even hourly shifts in the market. Interest rates fluctuate on
the simple principal of supply and demand.
Mortgage rates trade based on Mortgage Back Securities and The Bond
Markets as well as the overall economy. The vehicles that mortgage
rates are based on are considered very conservative, stable and tend not
to have the wild swings that one would find in the Stock Market. If
the Stock market begins to see large increases or decreases, Investors
will shift Billions of dollars in and out of the Stock Market and move
them in to the Mortgage Markets. This will cause mortgage rates to
either rise or fall. Stock Market tanks, good news for Mortgage Rates,
Stock Market rallies and rates suffer. Investors and Traders will
constantly shift funds out of the riskier stocks into the safe haven of
the mortgage markets. These shifts can occur as little as once a day or
in some cases can happen multiple times during a trading day. Thus
causing mortgage rates to possibly change multiple times in a day.
These markets are affected globally as well; so even after the
markets are closed in US, whatever is happening in Europe, Asia and
around the world will cause our markets to move one way or the other.
Here are some of the variables that are being watched in today’s market:
Any of these items can trigger a rally one way or another. Even a
simple comment at a breakfast meeting by the President, the Fed Chairman
or someone in power is enough to influence the markets.
Additional Mortgage Rate and Index Information:
To help us understand why mortgage rates change, it is important to
realize that there is not one interest rate, but multiple ones. Below
are some of the most prevalent interest rates and indexes that also have
an impact on mortgage rates:
Prime rate – This rate is often offered to a bank’s best
customers. If you are shopping for a home equity line of credit, then it
is important to familiarize yourself with the prime rate. HELOCs are
typically based upon the prime rate -plus or minus a certain percentage.
LIBOR – Stands for London Inter-bank Offered Rates. Libor
rates are based upon the rates that a select group of London Banks offer
each other for inter-bank deposits. Many adjustable rate mortgage
programs use the Libor index.
Treasury bill rates ”T-bills” and Treasury Notes –
These are short-term and intermediate debt instruments used by our
Government to finance their debt. The treasury index is based upon the
auctions of U.S. Treasury bills or on the Treasury’s yield curve. Like
the LIBOR index, the U.S. Treasury index is a popular index for
adjustable rate mortgage products. Also, the Twelve Month Treasury
Average (12 Month MTA) is a popular index which is based upon the twelve
month average of the monthly yields of U.S. Treasury securities
(maturing in one year). The MTA is a popular choice for option arm
Treasury Bonds – Unlike T-bills and Treasury Notes, treasury
bonds are long-debt instruments. These bonds are used by the U.S.
Government to finance its debt.
Cost of Savings Index – often referred to as the COSI index.
This index is based upon the annual average of interest rates on World
Savings deposit accounts. The average is pulled on the last day of each
11th District Cost of Funds – Often referred to as the COFI
index – The COFI index is based upon the average of the borrowing cost
to member banks of the Home Loan Bank of San Francisco of the 11th
District. Unless you are shopping for an option arm mortgage, it is
unlikely that your loan will be affected by this rate.
Certificates of Deposit Index – Often referred to as the CODI
index – this index is arrived at by calculating the average of the past
twelve months rates of 3 month CD rates.
Federal Funds Rate – The fed funds target rate is the rate
which federally chartered banking institutions lend balances to other
depository banks overnight.
This is a lot of information to weigh each day when calculating
mortgage rates. In general, most Banks, Investors, Lenders etc. will
set rates around 10:30am once most of the morning economic reports have
been released and the markets have had time to react to the
information. In a calm trading day on Wall Street, these rates would be
good for that day.
In a day where lots of Economic reports and World events are occurring,
these rates can be reset a few times as the Markets fluctuate. It is
important to call your lender or bank often to check on these rates as
they can and will change. It also important not to follow online rate
sites that may be posting Average Rates as this information can be old
as well a different Financial Picture then you may have. The Freddie
Mac rates are based on closed loans from last week and an average of .7
Points of fees in the rate. This may give you a range, but not accurate
enough to base your mortgage payment on or what is happening today in