Things that Don't Control Mortgage Rates

Mortgage rates are controlled by the price of mortgage-backed bonds. When mortgage bond prices rise, mortgage rates sink. Conversely, when mortgage bond prices drop, mortgage rates rise.  Aside from loan-level pricing adjustments, there are no other direct forces on U.S. rates. This distinction is important, too.
When you understand the forces controlling the current mortgage interest rates, you can be a better shopper.  For example, it’s commonly said that today’s rates follow the path of the 10-Year Treasury Note, which is another government-backed issuance. This is not true.

Over the course of years, mortgage rates and the 10-Year Treasury Note will track together. On any given day, however, they will not. There are plenty of days on which mortgage bonds and Treasury Notes diverge.  The Fed Funds Rate is also unlinked to mortgage rates.  The Fed Funds Rate is the overnight interest rate at which banks borrow money from each other. It’s an interest rate fixed by the Federal Reserve and used to speed up or slow down the broader U.S. economy.

The Fed Funds Rate and the 30-year mortgage rate have differed by as much as five percentage points over the last 10 years; and by as little as one-half of one percentage point over the same period of time.  If the Fed Funds Rate controlled current interest rates for home loans, the difference in the products’ interest rates would be constant.

And, lastly, mortgage rates are not governed by the Federal Reserve, any of its members, or any elected U.S. official. The rhetoric and actions of our nation’s central bank can affect demand for mortgage-backed bonds, but none can “set” home loan interest rates at-will.  Mortgage rates move at random.

Elite Financial, mortgage specialists located in Westlake Village CA, have been providing home loans and refinance loans Since 1988.  They offer a full variety of standardized programs: FNMA and FHLMC conventional loans, portfolio jumbo loans, as well as FHA and VA loans.  Elite offers outside the box financing, including stated income loans, bank statement loans, low FICO score loans, and loans for people with high debt to income ratios.