Posts Tagged ‘bond prices’

Any hope for mortgage rates?

February 15, 2018

As my colleague recently posted, mortgage rates are off to a rough start this year. As of this post, mortgage rates are a half point higher for the year. I won’t dig into the details of why this is happening. Rodney did a great job of it in his recent post. Today, I’ll focus on what can turn the tide for mortgage rates.

Stocks have suffered a rough start to the new year too. That is normally great news for mortgage rates. Normally as stock prices fall, bond values rise, and mortgage rates improve. The Dow fell over 2,000 points at one moment over the past few weeks, and yet mortgage rates also got worse. If a 2,000 point drop couldn’t help mortgage rates, what can?!?

We must look back at one of the root causes Rodney discussed – inflation. Mortgage rates hate inflation as it eats away at the value of mortgage backed security bonds. As those bond prices fall, mortgage rates rise. The way to help mortgage rates is to combat inflation. The best weapon we have at our disposal is the Federal Funds Rate… the Federal Reserve can continue increasing the Federal Funds Rate. In fact, every time they’ve done that over the past couple of years, mortgage rates have initially improved. Why? The higher the Federal Funds Rate goes, the more it can combat inflation.

Of course, the flip side is raising it too much can cool off the economy (don’t want that). Also, with the new budget deal passed last week by the government, more bonds will be sold to fund the increases to our national budget. More bonds available for sale also lower bond values, pushing mortgage rates higher. As I said in a post late last year, the environment for mortgage rates to get worse is here. That seems to be occurring. While mortgage rates are still low, the time of super low rates could finally be behind us.

The Federal Reserve could increase the Federal Funds Rate to fight inflation and help mortgage rates, but given the other factors at play, the increase to the funds rate may not help improve rates over the long haul for the time being.

If you’ve been sitting on the fence about purchasing a home over the past year because “rates are so low, why hurry,” the time may be now. If you are purchasing in the state of Georgia, contact me. We can get the prequalification process completed in minutes and have you ready to go out and find your new home!

Feds have opposite impact on mortgage rates

February 22, 2016


Seems the increase of the Federal Funding Rate didn’t have the negative impact on mortgage rates that many of us read about/heard about in the media. Since the Feds increased the Federal Funding Rate, mortgage rates have improved by at least 0.375%. Mortgage rates now sit at their lowest point since the beginning of 2015.


As bonds values go up, mortgage rates go down.

Why did mortgage rates improve if the Federal Funding Rate increased by 0.250%?

As previously discussed in this blog, mortgage rates are determined by mortgage backed security bonds. As these bond values trade, mortgage rates change… when bond values go up, rates go down and vice-versa. Also, when stocks endure bad times, bonds excel. This means as stock values drop, bond values rise, and in-turn, mortgage rates improve.

We all know what happened on Wall Street in January/early February. The Dow posted some historically bad numbers. Whether people were afraid of the price of oil, the oil glut, the Feds raising the Federal Funding Rate, or something else, stock prices plummeted, and so too did mortgage rates.

How should consumers respond:

  1. Don’t worry about interest rates getting better after you’ve locked in a rate. We have a float down option on our rate locks. If rates improve, your locked rate may be able to improve too. The rate will not get worse so long as it is locked. In other words, your rate could get better, but not worse. I’ve had several clients take advantage of this feature in the past two months.
  2. If you are thinking of buying a home (or refinancing), now would be a good time to get serious about it. Mortgage rates are not far off of their all time historic lows. Even if rates improve, you can use the float down option I just described.

Looking to buy/refinance a home in the state of Georgia, contact me today to get started. We’ll get through the prequalification process and get you ready to buy your new home!


How World Events Impact Mortgage Rates

March 18, 2014


What do protests in the Ukraine/Thailand/Venezuela, the Crimea dispute, and poor economic news from China have in common? In some way, shape, form or fashion, they impact mortgage rates.

“How” this happens is the better question.

A general rule of thumb with interest rates is this… When there is negative/bad news (poor economic outlook, rumor of war, unrest), mortgage rates tend to improve while stocks lose value. When there is positive/good news (good economic outlooks, increased hiring, resolution to unrest), mortgage rates tend to get worse while stocks gain value.

Notice I used the words like “general” and “tend” in the previous paragraph. With the events over the past several weeks, volatility and inconsistency reign supreme. Let’s look at some examples:

– On March 13, 2014 – China released economic news that continues to show a slow down in their economy. Meanwhile back at the Crimea Peninsula, Russian troops were conducting war games/exercises.

The result? The Dow lost well over 200 points, while mortgage bonds had one of their larger single day increases of 2014. These negative events/news stories helped interest rates improve.

– On March 17, 2014 – It is announced that Crimea has voted to join Russia. This lead to the Ukraine and Western countries threatening sanctions, Russia stating its support for the move, and a tenuous situation becomes increasingly complex and strained.

The results? The Dow endured further losses? Nope. Quite the opposite. The Dow had gains of almost 200 points with today’s futures showing even more gains. Typically, news like this would hurt stocks and help rates, but interest rates worsened on Monday.

The markets seem to be currently reacting to events in unexpected ways. This makes forecasting the direction of mortgage rates more difficult than normal.

How should you respond if you are in the market for a new loan? I have two ways:

1. Lock and Shop: go ahead and lock an interest rate for an extended time without having a home under contract. Once you find a home and are within 30 days of closing, you can then use a float down if interest rates are better than your original lock.
2. Rate Float Down: whether or not you use the Lock and Shop program, should interest rates improve by 0.250% or more from your original rate lock, you can float down to the current rate for free. There is no fee to use this feature. The float down can be used once you are within 30 days of closing and prior to 7 days before closing.

Using either of these programs gives you the best of both worlds… should interest rates get worse, your rate is locked! Should interest rates improve by 0.250% or more, you can still float down to the lower interest rate. This protects you regardless of what happens with the latest US jobs report, or economic outlooks in emerging markets, or the latest events in Crimea… your rate is protected.

To learn more about the free Float Down or the Lock and Shop program, contact me today. I can help you protect your rate now even if you haven’t found the home of your dreams.


Rates up, down and all around

August 13, 2013

Contrary to some conspiracy theorists out there, interest rates are not lowered based on banks needing more business OR rise because of too much business. If this conspiracy theory isn’t true, what does cause rates to rise and fall?


Interest rates move on a daily basis thanks to movement in financial markets – particularly mortgage backed security bonds. Just as stock values move up and down on earning reports, job market outlooks, etc., bond prices fluctuate just like stocks can.

As discussed in a recent post on this blog, statements by the Federal Reserve (or other government agencies) can impact interest rates. Interest rates are also impacted by what is taking place in the other financial markets. This is exactly what happened in May and June.

– during the month of May, stock prices were setting all time highs. As stocks do well, investors pull money out of bonds and put them into stocks. As money comes out of bonds, their values go down, and interest rates go up.
– with the trend already moving in the direction of a higher interest rate market, the Feds released a statement that their bond buying program would be ending relatively “soon.” With the government no longer buying bonds, it would lower their values. In anticipation of this coming change, the statement pushed bonds values way down and shot interest rates up dramatically in the early part of the summer.

How did interest rates fare in July? Interest rates not only flattened out, but also improved a little in the month of July. Why? The market stabilized after the Feds released another statement backtracking a little on their previous comments. Rates were also helped by weaker than expected economic news and job reports.

From these examples, we can see what really impacts interest rates:

1. as bond prices increase, rates decrease, and vice-versa
2. bad economic news that hurt stocks typically help improve interest rates
3. unexpected comments from government agencies can have quick and strong impacts on rates

This is one area where the conspiracy theory isn’t accurate. Now about Roswell, New Mexico…


Impact of the potential ratings downgrade

April 26, 2011

A week ago, Standard & Poor’s (known as S&P) downgraded the U.S. credit rating to a negative. The U.S. did not loses its AAA rating, but the downgrade makes it increasingly likely it could occur if government doesn’t get deficit spending under control.

Does the downgrade mean good news for interest rates? Bad economic news is typically good news for mortgage rates. The initial market reaction to the S&P decision would back this up as stocks took a dive, and bonds barely moved on the announcement.

What does this mean in the long term if the U.S. loses its AAA rating? Easy answer – losing the AAA rating would negatively impact everyone.

The damage to stocks is obvious… losing the AAA rating is bad for business. Bad for business = bad for the economy. When the economy drags, stocks tend to follow (as evidenced over the last couple of years).

Combating a downgraded rating would also hurt interest rates. If you read the previously linked Wall Street Journal article, possible scenarios could include:

  • the U.S. not defaulting, but becomes more difficult to borrow money
  • an option to pay off debt could include printing more money/lowering the value of the U.S. Dollar

Both of those options for dealing with deficit spending and a rating downgrade hurt interest rates. The U.S. would still find funding sources, but not at the favorable rates we see today. An increase in the rates for the U.S. to borrow money would cause all rates to increase.

Second, printing more money leads to inflation. There is no way around it. Bonds HATE inflation. The higher the rate of inflation goes, the faster bonds lose their value. As we all know from reading this blog, as the value of bonds go down, interest rates go up!

Losing the AAA rating would be bad for everyone… the government, investors, stock prices, bond prices, retirees, home buyers… you name it, and it will probably be impacted. This is one thing that both sides in Washington agree on – we don’t want to lose the AAA rating. Now, let’s see if they can agree on a way to prevent a potential ratings downgrade!