WHAT is up with the mortgage rates these days? Well, I’m no finance expert, as many of us aren’t, so here’s the bit I know about. Maybe it’ll explain a bit. It doesn’t make the rate changes any easier to accept, though, sorry.

Low Rate History

Pre-COVID pandemic, the lowest rates seen in a while were around 3.6% in August of 2019. Mar of 2020, rates were at the then lowest of about 3.16%

What's Up With Mortgage rates?

As I understand it, the rates are driven by what’s called in acronym the MBS , or mortgage-backed security. Mortgage-backed securities are debt obligations purchased from banks, mortgage companies, credit unions, and other financial institutions and then assembled into pools by a governmental, quasi-governmental or private entity. These entities then sell the securities to investors. Essentially, the MBS turns the bank into a mediator between the homebuyer and MBS investors

“…In return, the investor gets the rights to the value of the mortgage, including interest and principal payments made by the borrower. However, if the homeowner defaults, the investor who paid for the mortgage-backed security won’t get paid, which means they could lose money. Therefore, an MBS is only as sound as the mortgages that back it up, a fact that became painfully evident during the subprime mortgage meltdown of 2007-2008… “

How do mortgage-backed securities affect mortgage rates?

The cost of mortgage-backed securities has a direct impact on residential mortgage rates. This is because mortgage companies lose money when they issue loans while the market is down.

When the prices of mortgage-backed securities drop, mortgage providers generally increase interest rates. Conversely, mortgage providers lower interest rates when the price of MBSs goes up.

When Will Rates Come Back Down?

From the above chart, rates seem to have been close to the 2021 lows around mid 2016. Prior and after that they hovered around about 4.5% on and off.

It could be the political and global instability that has raised the MBS. First, the pandemic caused the economy to contract quickly. Then the economy grew much faster than anyone expected. The Federal Reserve’s job is to keep inflation (INFLATION: “a general increase in prices and fall in the purchasing value of money”) in check and help the job market grow. When that doesn’t happen fast enough, the “federal fund” rates are raised to stop the prices going higher. Low rates help bolster the economy by making it cheaper for businesses and households to invest in new projects, hire staff or take out a loan to buy expensive items like homes or cars. Higher rates do the opposite, and are designed to slow the economy by reducing consumer demand.

Here’s A Good Article About Inflation

“The Fed” has a set benchmark of 2% inflation, and we saw upwards of 7% or more this year. That’s why the rate hikes so large and quickly happened. However, many bankers and congressfolk caution ‘The Fed” to not push so hard, as a recession may occur. The high rates are supposed to gently deflate the inflation rate, but it’s tricky. It could have the dramatic effect of dropping off entirely. It’s a balancing game made up of humans on each side of the beam, and we know that human behavior is not very predictable.

Many lenders DO feel that rates will start to level out by summer 2023 and believe that the ability to re-finance your home loan will be easy enough at that point if you purhcase now with a 6-7% mortgage rate. If you work out a mortgage Buy Down with your lender, and the home seller, that’s a start at being able to buy your home now, lower your rate a bit now, and more next year.  Make sure your Lender is not overconfident, and that you do not overextend yourself financially, though. A home of your own is priceless, but we want you to be able to keep it for a long time.

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