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Financing

Is That Super-Low Mortgage Rate Too Good to Be True?

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Have you ever heard about the great low mortgage rates in the media, only to call a mortgage company and receive conflicting information? Here's why that happens.

First, real-time information is critical. When you hear about mortgage rates in the news, by the time you take action, the information is already dated. Mortgage rates and pricing change just the way the price of stocks do. Mortgage pricing, which stimulates rate movement, may change multiple times per day or remain unchanged, based on economic events unfolding domestically and internationally.

Stocks, bonds & mortgage rates are connected

Investors, in a broader picture, place their money in equities or a fixed-income arena. When investors are optimistic about the economy, they buy stocks, moving their monies from the bond market to facilitate transactions. This action causes mortgage pricing and rates to worsen (go up). When negative or lower-than-expected financial reporting is made public, investors tend to shy away from stocks, causing a sell-off, shifting their monies into the fixed-income/bond market, which drives yields up and mortgage rates down. Mortgage rates improve (drop) based on negative economic data. As strange as that may sound, lenders want to see yields in mortgage-backed securities rising, which is a driver of low interest rates.

For example, last week the massive stock market drop sent mortgage rates plummeting lower for about 48 hours. Then, as the stock market regained its losses, rates went back up by 0.25%. If you heard about the news of the stock market crash with lower rates and then inquired about mortgage financing within 72 hours of that market movement, you would've been receiving much different rate and price quotes than what you may have heard about in the news.

Seeing the news, getting financial guidance

The media reports on mortgage rates are a snapshot of what's happening at a particular moment, and in a general sense. (The same goes for rates you might see in mortgage advertisements.)

How that information may apply to your unique situation, though, is a different matter. What the news can't help you determine is the optimal time for locking in your mortgage rate and price. That's the role your loan professional takes, working in tandem with your expectations. When you see a headline: "Mortgage Rates Dropped .375% This Week," that may be a good prompt to call your loan professional for a real-time quote. In doing so, ask what transpired in the market, what pricing changes (which affect rates) occurred, and whether those changes, if any, affect your loan specifically.

Remember, by the time you hear it in the news, the rate and pricing have likely already changed. For example, if you see a news report that says "30-year mortgage rates drop to 3.75%," that does not automatically mean that you'll be able to get a 3.75% loan when you contact your lender. In addition to timing -- your loan amount, equity, occupancy, loan size, loan purpose, and mortgage company (lenders price loans differently) all affect your rate and cost quote on any given day. Your credit score is also an important factor in this equation, so it helps to keep your credit in the best shape possible. (You can get your credit scores for free from many sources, including Credit.com, to watch for important changes.)

All mortgage lenders get their money from the same place and no lender, broker, or bank has a monopoly on the market. Ask questions and make sure to communicate with your loan professional, especially about any rate and pricing expectations you may have, as rate and pricing have direct bearing on what you're going to pay over the next 360 months.

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This article was written by Scott Sheldon and originally published on Credit.com.

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