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See what's happening with home values in more than 400 metropolitan areas with HSH's Home Value Tracker, just updated though the second quarter of 2022.

See what's happening with home values in more than 400 metropolitan areas with HSH's Home Value Tracker, just updated though the second quarter of 2022.

Why do mortgage rates change?

Keith Gumbinger

If you've been following mortgage rates in order to pick the perfect time to refinance or to apply for a home loan, you may have noticed that rates fluctuate daily. Mortgage rates change for a variety of reasons, all related to current economic conditions and the willingness of investors to purchase mortgage-backed securities.

Mortgage investors

The simplest explanation -- although not the only factors that determines mortgage rates -- is that rates are closely tied to movements in bond markets. As bond prices rise, their yields fall, and it is these yields which influence mortgage rates up or down.

While some mortgage funds come from deposits held at banks and brokerages, most come from investors. Mortgage investors are interested in earning the highest possible interest rate (“yield”), while mortgage borrowers are looking for the lowest possible interest rate. Yields need to be high enough to make the investment valuable, but low enough to attract borrowers.

Since mortgage investors are looking for a fixed-income investment, rates increase or decrease according to the competition for investors in these and other bonds.

Mortgage rates and Treasury bonds

There is no specific lockstep link between mortgage rates and Treasury bonds, but the latter are often the benchmark for other bonds since they are backed by the federal government and considered “risk-free.” Since Treasury bonds are 100 percent guaranteed and mortgage bonds are not, mortgage rates are typically set a little higher to compensate for their higher risk.

The difference between Treasury bonds and mortgage rates varies according to market conditions and sometimes one will rise (or fall) faster than the other.

Mortgage rates and market forces

In a normal market, without government intervention, mortgage rates would depend to a great extent on supply and demand. For a time, the Federal Reserve and Treasury were purchasing mortgage-backed securities (MBS) from Fannie Mae, Freddie Mac and Ginnie Mae along with certain MBS from other investors, who wanted to sell some of their holdings and were not willing to buy any new MBS, clogging up the mortgage market.

For a much more detailed review of the factors that move mortgage rates, you'll want to read "What Moves Mortgage Rates? (The Basics)" our deeper dive into the topic.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
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Q: How are mortgage interest rates determined?
AUG 18, 2022
A:

Mortgage rates fluctuate from day to day, depending on a number of factors related to the economy and to choices made by investors. While some mortgage money comes from deposits held by banks and credit unions, most of the funds for borrowers come from investors in capital markets.

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Q: Will today's stock market influence tomorrow's mortgage rates?
AUG 16, 2022
A:

Mortgage rates are influenced by a variety of factors, rather than moving in lockstep with any one economic indicator. The stock market rises and falls for a wide variety of reasons, including global, economic and political issues, but as a broad rule of thumb, a rising stock market indicates optimism among investors about the economy.

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Q: Should I pay private mortgage insurance out of pocket or finance the cost?
AUG 12, 2022
A:

For the most part, this is a discussion about time. You should compare the total costs of the difference in the two interest rates over your given time horizon.

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