Understanding The Volatility of Mortgage Rates

With the economy in a mess, an increasing number of workers are being let go, and bigger parts of the country are ordered to stay at home to prevent the spread of COVID-19, record low interest rates for mortgages were one bright spot within the financial sector. But not anymore.

Both homebuyers and homeowners who are looking to refinance would be disappointed once they see the rates that have gone up and down in a wild manner during the past few days, and in some cases, even by the hour. This is an unprecedented kind of volatility, and it makes it harder for borrowers to lock in a lower rate, says the professionals. There is an upward surge on the mortgage rates even if the Federal Reserve has cut back short term interest rates.

Rates have increased from a low of 3.13% on March 2 by over a full percentage point to 4.15% on Friday. Other lenders reported the rates to be at the mid 5% range. Mortgage rates are extremely volatile, and it’s by a wide margin. At this point, borrowers who are looking for some good news would most likely be disappointed amid the coronavirus crisis.

Mortgage Rates Are On A Roller Coaster Ride

Mortgage rates tend to fall whenever the economy struggles. However, there is nothing normal about this time and there are many financial reasons why the rates are going up and down wildly.

First of all, it is the lenders’ reaction to the massive throngs of homeowners who’ve been wanting to refinance their current mortgages when the mortgage rates crashed earlier this month. The rush in gold was understandable. A few homeowners go to save hundreds or even thousands of dollars over the length of time of their 30 year loans after managing to have it refinanced at much lower rates. However, the rising number of people search to lock in these kinds of deals have turned out to be much more than a few lenders could deal with. Some have decided to increase their rates to slow down the whole process.

However, the mortgage backed securities within the secondary market are the driver of mortgage rate’s volatility. Once lenders make a mortgage, they generally do not want to keep it since it will tie up the cash they could use for new loans. So they end up selling their mortgage loans, which have been bundled into a group of mortgage backed securities like the mortgage bonds to investors who are in the secondary market.

Investors think they’re like the U.S. Treasury bonds. They are safer but these investments are less lucrative compared to the stock market. Given that the stock market is currently down, investors have conventionally turned to bonds. However, the market is now flooded with bonds because of the deluge of refis as well as the federal government giving out more bonds to fund the measures aimed to stimulate the economy. Therefore, the bond prices are currently low. Since mortgage rates are inversely proportional to bond prices, the mortgage rates are up if the prices of bonds are down.

Call Reverse Mortgage Specialist if you wish to know more about mortgage rates.

David Stacey
Reverse Mortgage Specialist
Columbia, SC 29205
(803) 592-6010
http://reversemortgagecolumbiasc.com/