Everybody in America is caught up in the housing market, whether they like it or not. Newscasters routinely read scripts trying to update consumers on where interest rates or housing prices are at the moment. Problem is, they’re reporting stale information about a moving target.
Home loans are originated locally, but are then sold into the secondary market where they become mortgage-backed securities. These securities trade on Wall Street like stocks, so the “price” of an interest rate moves throughout the trading day just like the prices of gold, or oil, or corn. Economic reports and global political surprises can significantly move an interest rate’s price from one moment to the next.
The “rate” usually quoted in the news is the Freddie Mac Weekly Primary Mortgage Market Survey. Each week lenders around the country are surveyed for their pricing on an 80 percent loan-to-value mortgage. Requests go out Monday and are due by Wednesday, and the average interest rate is reported on Thursday of each week. Already you can see that the rate you hear reported in a broadcast is already so old it is no longer available.
Additionally, you’re getting information about a “base” interest rate. Many factors cause a more expensive loan. For example, if the loan in question was only $100,000 and did not have an impound account, for a client with a credit score better than 740, the consumer would pay 0.625 points more than the base Freddie loan. Same scenario for a client with a 620 credit score means paying 4.125 percent more in points. (A point is equal to 1 percent of the loan amount.)
Couple the way rates fluctuate during the day based on market conditions, with extra fees based on loan features, and you can see why the talking heads are often misleading. Even if they aren’t meaning to, there is no way to convey the complexity of mortgage pricing in a few seconds’ sound bite.
Choose to work with your local mortgage advisor as a trusted source of not only what rates are, but why they are. Better to have a good understanding of your largest debt, than to make decisions based solely on a headline.