Current mortgage loan rate
The causes for the mortgage rates to rise and fall are never really known to the layman. The ebb and flow might make you blame or appreciate your lender but usually they are not the actual reason for the changes. In today\'s competitive market it is the investors in the secondary markets who drive the forces of change. To the common man this is one phenomenon that has no valid explanation, (it is only the financial analysts who can give better answers, which is most often not shared) but only seems to affect or help them when they least expect it. However whatever the reason, this plays a great role in the layman\'s ability to own or sometimes even keep his home.
The Basics
The lender for your mortgage, be it a bank, a credit union or any other type financial institution, lends you the money to buy your home. You on receipt of the money turn it over to the home owner to gain ownership. Thus the money flows from the bank to yours hands and from yours to hands of the owner and the lender who started this flow of funds is called the originator.
Once the loan has be given, the originator has two option to deal with the loan. Either they can keep it and make money by way of the interest that you pay every month or the originator can choose to sell off the loan to investors in the secondary market. By selling it off the originator will replenish the money in their portfolio, which will give them the funds to again offers loans to others looking for mortgage. Therefore it is the investors in the secondary market who keep the money flowing and circulating and ensuring that the originators never run out of funds to loan out new mortgages.
What & who comprises of the secondary market
The investors in the secondary market are insurance companies, pension funds, dealers of securities and also government-chartered companies, who usually buy mortgages and also group them together for resale. This grouped together mortgages are called the mortgage-backed securities, which can be bought and sold readily since they are highly liquid investments.
How the market works
The investments in the secondary market always affect home mortgages buyers directly or indirectly.
Every investors looks to get greater returns for their investments and the level on returns in largely dependent on the current market conditions and that of the future. Hence when the economy is booming the yields are higher and the returns anticipated for the future are also higher than the present.
This being the case investors will put a hold to buying until the higher returns of the future happens, which in turn will lead to increase in interest rates because the lenders or originators are forced to own all the mortgages, which will not be bought due to lower returns.
On the other hand when the economy is in a bad shape investor will try and buy up as much as possible to avoid being stuck with yields that will be very low. This in turn drastically reduces mortgage rates.
How this can help you.
If you pay even a little bit of attention regularly to what\'s happening in the financial markets and plan your options accordingly you can ensure that you lock the lowest rate possible by calling your lender when the tide is low enough, thereby making a huge profit in the long run.
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