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Current Interest Rates – Week of 8/27/12

Continued volatility brings interest rates and stocks from recent highs.  Fed hints at purchase of Mortgage Backed Securities to further stimulate the economy.  Is QE3 coming?

What happened with interest rates last week?

After weeks of steep selling in the Bond markets, yields for mortgage interest rates and the U.S. 10 yr. Treasury have risen anywhere between .25%-.375%.  That’s a huge swing if you’re a home buyer out shopping with your Real Estate agent.  With mortgage backed securities flirting with support at the worst levels since March (100 day moving average) and stocks fighting resistance at multi-year highs, something had to give.  Mortgage backed securities and interest rates bounced off their worst levels and managed to erase half of their losses in one trading day, establishing new support at the 50 day moving average.  At the same time, the 10 yr. Treasury peaked at its 200 day moving average before starting to pull back.  These resistance levels will now begin to establish a new trading pattern.

What happened?  The economic news was light last week, but most of the volatility came after the Fed released its FOMC minutes and further hinted at the need further stimulus.  The commentary at this point hints at the purchase of Mortgage Backed Securities to try and help keep rates low or possibly drive them lower.  While much of QE3 has been priced into the market for the last few months, a final release and confirmation of the purchase plan will likely bring more volatility to the markets.

Last week we showed how mortgage backed securities had fallen through support at the 50 day moving average (dma) and were trying to hold support at the 100 dma.  After testing the support, mortgage backed securities rebounded to break above resistance and establish new ground at the 50 dma.  This level will be watched closely to see if pricing can improve and bring us lower interest rates.  (Remember that as the price of mortgage backed securities increase, the interest rates/yield will decrease).

Current Interest Rates and Mortgage Backed Securities for Home LoanLow interest rates for home buyers after rebound in market

What’s coming up this week on the economic calendar and what’s the impact on interest rates?

Most of the week will surround commentary, editorials, guesses, and opinions surrounding Fed Policy and direction.  Does it make sense to take on further Fed stimulus by purchasing mortgage backed securities to boost the economy?  The debate has been going on for years and the effects may linger for decades, but there is a strong likelihood that QE3 is coming.  Fed Chairman Ben Bernanke will be delivering a speech on the Economic Outlook and Monetary Policy on Friday, possibly announcing QE3.  If/When it happens, be prepared for massive market volatility.

The Bond markets will also battle a new $99 Billion in Treasury auction supply.  As another long term, secure outlet for investors, these auctions can take away from buying of mortgage bonds but also acts as a litmus test for the Bond markets as a whole.  $99B is a massive supply to unleash on the markets.

The economic calendar is full of reports this week but most should not have much of an impact on the Bond markets until Thursday’s Core PCE release.  A popular measure of inflation, Core PCE should remain tame, but bonds and interest rates will almost always suffer if inflation starts to increase.  File that away for now, but keep in mind for the coming months/years.  Closing out the week will be the release of Chicago PMI, a manufacturing index to judge economic growth.

Here’s our strategy for the days and weeks ahead…

Interest rates have managed to find their way back to amazing levels and within a close range of historic lows.  This rebound is a great opportunity for home seekers and home owners to think about locking in their interest rate.  We’ve been shown again how volatile interest rates can be and see this rebound as an opportunity to capture what was lost.  Sure, rates could move lower, but they could very easily move lower.  Start a dialogue and relationship with someone that understands the market so you can take advantage of interest rate opportunities when they present themselves.

We maintain an ongoing dialogue with our clients about the market and interest rates throughout their financing experience so we can take advantage of the lowest rates when they present themselves. We all want the lowest rate, and the best way to ensure that you get the lowest rate, is to build a relationship with your mortgage planner, so they can best advise you on when to lock in your rate. Call us today for a complimentary mortgage review or Apply Online.

Current Interest Rates – Week of 7/30/12

Interest rates move fast as fears subside in Europe, helping boost stocks. Mortgage backed securities move from all time highs to their worst levels in 3 weeks as investors sell bonds to free up cash and take advantage of the positive global economic outlook.

What happened with interest rates last week?

We started off last week’s report with interest rates at all time lows and the yield on the 10-Year Treasury Note at its lowest levels since the early 1800s, 1.39%. By the time the market closed on Friday, mortgage backed securities had reached their worst level in 3 weeks and the 10 yr. Yield had climbed to 1.54%. That is a massive swing in the market, with the majority of it coming in a 3-4 hour period on Friday.

Why the big swing? Before the market opened on Friday, rumors surfaced that the European Central Bank (ECB) would start buying debt of countries within the European Union (such as Italy, Spain, France…) to reduce the recent pressures on their yields/rates. We mentioned last week that the Spanish yield had climbed to 7.62%, but after investors factored in the potential purchasing of the ECB, the yield dropped down to 6.58%. The ECB purchasing these other bonds lets investors know that they’re not the only ones with skin in the game for the national debt of a country, thus driving down the required yield or required rate of return for the bonds of those countries being purchased.

The end result of this shift in market sentiment is for money to flow out of the safe haven of our US bonds (MBS, 10 yr. Treasury…) and into something that is paying a higher yield. This causes our mortgage backed securities to sell off, driving rates higher. The chart below will show the swing on Friday after the rumors were released.

Mortgage Interest Rates and Mortgage Backed Securities - 07/27/12

When it comes down to it, investors can purchase a fixed rate of return from the US at a rate of 1.39% through a 10 yr. Treasury Note or they can go buy a fixed rate of return from the Spanish Treasury and get a 6.58% rate of return. It all comes down to investors having confidence that their yield will get paid and that there will be a market available to sell when the time is right. The spreads on these returns will normalize at some point, but in the mean time, look for investors to keep rolling the dice to find the sweet spot between a risk/reward relationship in bonds and treasuries.


What’s coming up this week on the economic calendar and what’s the impact on interest rates?

Following up a volatile trading week, mortgage backed securities and interest rates won’t have a chance to rest. The FOMC and ECB will be meeting this week with investors listening closely for any rumors and announcements. Since the FOMC and ECB have the ability to flex their muscle and announce how much firepower they’re willing to invest to help stabilize the markets, investors recognize this and will in many cases follow their direction. Rumors alone caused the market shift on Friday, so any news could be an important factor to help our clients secure the lowest interest rate.


Here’s our strategy for the days and weeks ahead…

As the 10-Yr. Note and mortgage backed securities took one of their largest hits in months, we are recommended that our clients closing in the coming days/weeks to lock in their interest rate now. We were fortunate to have our clients prepared for the market movement on Friday and were able to secure their interest rates before the market moved, savings them thousands of dollars over the life of their loan.

The opportunity to secure a historic low interest rate will come and go, so if you or your clients are closing in the coming weeks/months, we continue to recommend starting your pre-qualification process so that you can have a strategy in place for when interest rates make another run at historic lows. By beginning the process with your mortgage planner, they can be prepared to help you take advantage of these historic low mortgage rates next time the opportunity arises.

We maintain an ongoing dialogue with our clients about the market and interest rates throughout their financing experience so we can take advantage of the lowest rates when they present themselves. We all want the lowest rate, and the best way to ensure that you get the lowest rate, is to build a relationship with your mortgage planner, so they can best advise you on when to lock in your rate. Call us today for a complimentary mortgage review or Apply Online.

Current Interest Rates – Week of 5/29/12

Food for thought…Interest rates were a staggering 1% higher at this time last year. Sure, sounds like a big swing, but what does this mean to someone in the market for a home loan? The current low interest rates allow someone looking in the $225k price range to afford an extra $25,000 in loan amount compared to a year ago. The same loan amount with a point higher rate would be over $133 more per month. While interest rates may not go up immediately, the chart below illustrates how quickly interest rates can move.

Mortgage Backed Securites for 1 year showing change in rates

What happened with interest rates last week?

After reaching all time lows with interest rates on multiple occasions in weeks prior, interest rates were not able to push lower. Instead, we saw mortgage backed securities sell off and have started to make a pretty good case that rates are about as good as they’re going to get for the near term.

The eco-drama continues over in Europe with Spain trying to get a grip on their financials. It’s your choice on who to thank, but Spain, Greece and the rest of the European Union have, without question, helped move our interest rates to where they are and have kept them from going higher. Fear based selling drives money into longer term bonds, helping interest rates.

Markets closed early last Friday and were closed no Monday in observance of Memorial Day.


What’s coming up this week on the economic calendar and what’s the impact on interest rates?

Coming up during this holiday shortened week is the ADP Employment Report on Thursday 5/31 at 7:15 CT and Chicago PMI at 8:45 CT, both of which could cause interest rates to move.

Rounding out the week is one of the more action/news filled days we typically see on the calendar. This will be kicked off on Friday morning, starting at 7:30 CT prior to the market open. The first item worth highlighting is the release of Core PCE, a popular measure of inflation. The Fed likes to see this number within a target range of 2%. Should this figure come in higher than expected, interest rates could suffer due to fear of inflation, the arch nemesis of bonds/rates.

Perhaps the largest report of all is the Jobs Report, estimating non-farm payrolls to be at 155,000. A number reported higher than expected means a potential for rates to suffer as the warm and fuzzies of a growing economy fill the air and investors move their money out of bonds and into stocks.


Here’s our strategy for the days and weeks ahead…

Home mortgage interest rates have gone up over the last few weeks since reaching all time lows. Will interest rates get that low again? It wouldn’t be a surprise if they did, but based on the data and tools that we have on hand, interest rates are more likely to go up over the next year than they are to go lower. Take a look at the chart above and imagine the market moving the other direction, causing rates to increase over 1%. It’s not a matter of if they’ll go up, but when, so talk with your mortgage planner to put a plan in place to take advantage of these rates while they’re still around.

Four Questions to Ask While Shopping for a Mortgage

Are you buying a home and considering shopping for a mortgage or home financing?  Here’s the inside scoop on how to do it right!

First:  make sure you are working with an experienced, professional mortgage planner or senior loan officer.  The largest financial decision of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way.  But how can you tell?



1) What are mortgage interest rates based on?  (The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.  DO NOT work with a lender who has their eyes on the wrong indicators.)


2) What is the next Economic Report or event that could cause interest rate movement?  (A professional lender will have this at their fingertips.  For an up-to-date calendar of weekly economic reports and events that may cause rates to fluctuate, call us and we are happy to provide a complimentary in depth market analysis so you can know when is the best time to lock in an interest rate.


3) When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates?  (The answer may surprise you.  When the Fed makes a move, they can change a rate called the “Fed Funds Rate” or “Discount Rate”.  These are both very short- term rates that impact credit cards, Home Equity credit lines, auto loans and the like.  On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change.  This is due to the dynamics within the financial markets in response to inflation.   For more information and explanation, just give us a call).


4) Do you have access to live, real time, mortgage bond quotes?  (If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing.  Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future?  No way!)

Be smart…  Ask questions…  Get answers!

 More than likely, this is one of the largest and most important financial transactions you will ever make.  You might do this only four or five times in your entire life… but we do this every single day.  It’s your home and your future.  It’s our profession and our passion.  We’re ready to work for your best interest.

Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to “shop” effectively.

First, IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS.  But you didn’t really need us to tell you that, did you?  Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook.  Is the rate adjustable?  If the rate seems incredible, are there extra fees?  What is the length of the lock-in?  If fees are discounted, is it built into a higher interest rate?

Second, YOU GET WHAT YOU PAY FOR.  If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder.  Best case, expect very little advice, experience and personal service.  Worst case, expect that you may not close at all.  All too often, you don’t know until it’s too late that cheapest isn’t BEST.  But if you want the cheapest quote – head on out to the Internet, and we wish you good luck.  Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience and credibility (See our Six Rules of Credibility in a Home Financing Relationship).  Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run.  This is the largest financial transaction most people will make in their lifetime.  That being said – we are not the cheapest.  Of course our rates and costs are very competitive, but we have also invested in the technology, systems and team we need to ensure the top quality experience that you deserve.

Third, MAKE CORRECT COMPARISONS.  When looking at estimates, don’t simply look at the bottom line.  You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls.  And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line!  APR?  Easily manipulated as well, and not reliable as a tool of comparison.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND.  This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm.  On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate.  Either of these balances might be right for you, or perhaps somewhere in between.  It all depends on what your financial goals are.  A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY.  This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis.  For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison.  You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.


Again, our advice to you is to be smart.  Ask questions.  Get answers.


As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.

Please call us with any further questions you may have at this time – we are ready to work for your best interest!