Most prospective home buyers and borrowers are not likely to know how mortgage rates are truly determined on a daily basis. Many borrowers are often surprised to discover that mortgage rates change daily, occasionally changing numerous times throughout the course of the day.

Borrowers who are trying to make a decision as to when to “lock in” their interest rate and/or may be deciding on which lender to use, may find that comparison shopping is a bit more difficult to do when interest rates are a moving target. The way the mortgage lending industry works and how mortgage rates are set may be viewed as somewhere between “a bit confusing” to “the entire banking and mortgage lending world seems to be engaged in an industry version of 3 Card Monte!”

The truth of the matter is that mortgage rates are determined each day based on what transpires in our financial markets, specifically the U.S. financial markets (aka “Wall Street”) and more specifically, the secondary mortgage market. The mortgage interest rates that are offered each day by Banks, Credit Unions, and Mortgage Bankers are determined by what they see occurring throughout the day on the secondary market.

The secondary mortgage market is a critical part of the financial conduit that exists to ensure that Banks, Credit Unions, and Mortgage Bankers have money to loan without interruption. A thorough explanation of exactly how the secondary mortgage market works would require far more words than you are likely to care to read, as well as an alphabet soup of abbreviations and acronyms such as MBS, CDO’s and more. Suffice to say that mortgages are traded on the secondary market much in the same manner as Bonds. And as with both Stocks and Bonds, prices change daily, often times by the minute.

Consider the following analogy. If you were to call your Stock Broker and ask for the price of a specific stock at 9:00 a.m., your Stock Broker would tell you that the current price is likely to be different even 1 minute later, let alone at the end of the day or week. Mortgage interest rates can be very similar. While a mortgage interest rate quoted may hold for the entire day, that’s not always the case. And almost always, mortgage interest rates will change at least slightly from day to day.

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Your Axia Mortgage Professional can provide you with up-to-the minute interest rate quotes and can also provide you with additional information that will help you to make educated and informed decisions. Look for our next Blog posting which will shine a light on the eleven (yes, 11!) different variables that can affect the interest rate you receive.

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