Lenders don't actually set the
mortgage interest rates on the mortgages they approve.
While they do approve you for a
mortgage and write the terms, the actual interest rate is basically
determined by the secondary market. This is where mortgages are
bought and sold.
Fannie Mae and Freddie Mac are two of
the largest and most influential mortgage investors. They
were founded by the government several decades ago in order to make
the lending process more efficient. They, and other investors, buy
mortgages and either hold them in portfolios or bundle them into
mortgage-backed securities. The securities are sold to Wall Street,
mutual funds and other investors, who trade them the same way bonds
are traded.
The financial investors on the
secondary market, not the mortgage lenders, determine the interest
rate of your mortgage loan.
Interest rates in the secondary
market move up and down, much like the stock market. When the
economy is up, investors demand higher yields and mortgage rates
rise. When the market is down, rates tend to drop due to an
increased investor demand.
Interest rates move in a cycle, they
go up and down. Many investors use the 10-year Treasury bonds as a
barometer. When bonds go up, interest rates usually go
up.
In order to get the best mortgage
rates, you will need to track the financial trends for a period of
time and purchase your home according to the market.
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