Understanding Mortgage Rates

[Jan 15, 2010.]

 

They're up. They're down. They're up, then down again. Such is the teeter-totter life of mortgage rates. But if borrowers think they can time mortgage rates to get the best deal, they should think again.

Current Mortgage Rates

How mortgage interest rates are determined is a complex process that is based on a variety of factors. What happens with the 10-year Treasury bond is usually a good indicator of which way mortgage rates may go. If bond yields rise, mortgage interest rates also go up.

Changes in the federal funds rate set by the Federal Reserve can impact mortgage rates, too. Interest rates also tend to rise when there is more demand for home loans. Other market indicators that can affect the price paid to borrow money include inflation, unemployment statistics, consumer confidence, and movements in the stock market.

Lock-in Today's Mortgage Rate

Nothing can guarantee that mortgage rates won't change after a borrower fills out a mortgage loan application. Generally, the mortgage quote that person receives is for that day's rate.

When a borrower finds a deal he likes, he usually has to pay a fee to lock-in that interest rate. Otherwise, the rate floats until it's time to close on the loan. Depending upon market conditions, the mortgage rate could be higher or lower at closing.

At some mortgage lenders the lock-in fee is an upfront charge that is nonrefundable. Other lenders allow the fee to be paid at settlement. Borrowers should always try to get the commitment for a lock-in in writing from  mortgage lenders. Written proof of a lock-in can help avoid disputes later.

Co-Operate with Mortgage Lenders

Most lock-ins are only good for a specific period of time. It's common to see lock-in periods of 30 to 60 days. To avoid having a lock-in expire borrowers should be prompt with providing all paperwork required to close on a loan. Not reponding quickly or giving incomplete documentation can hold up the process, making it more likely a lock-in is going to expire before the closing.

How Much Can I Borrow for a Mortgage?

Fluctuating mortgage rates can affect how much a person can borrow to buy a home or refinance. It's a good idea to gather several mortgage quotes from lenders to compare rates and fees. Borrowers can also run different borrowing scenarios by using a mortgage rate calculator.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.