In the eyes of the lender, the world of mortgages and all the metrics associated with them can be confusing. The fact of the matter is that those rates are determined not by the lender, but rather the people selling them to those lenders. It’s a bit confusing at first, but we’ll help break it down.
Why It’s Important to Know
On the borrower’s end, mortgages are often essential to be able to afford a home or other commodities. This doesn’t always mean that they’re going to be easy to get, though. When you’re looking at a sea of rates available to you from a litany of institutions, it can get confusing to understand. Having the insight on what the institutions use to determine the rates they offer you gives you the power to improve your situation! When you know what to expect, you’re less likely to give in to a worse payment rate. Past that though, understanding the market around you can give insight on trends to watch for to find the right time to shop around.
The Secondary Market
Secondary mortgage markets are companies that purchase the amount of a mortgage from lenders and bundle them up into securities, which are then sold to investors. In simpler terms, when a borrower gets a mortgage from a lender, they owe X amount of money which is paid back over time with interest. This mortgage is then turned around and sold to these secondary companies. The lender has their money back instantly and can go on to find more borrowers, while the secondary company can sell the money from that mortgage (now called a security) to an investor, who wants their money back and more over time.
This system exists to keep money flowing quickly through the industry. Immense finances often back secondary markets, and as such can afford to take on the risks associated with lending money. Without a secondary company, lenders would be a lot more stringent and wary of lending out that money because it’s their money that’s at risk. To sum it all up, the borrower buys from the broker, the broker sells it to the secondary, and the secondary sells it to investors. At the top of the food chain, it’s what investors are willing to buy that determine your mortgage rates.
If you think about it from their perspective, they’re paying a lot of money to see that money repaid and profits over a long period, often years upon years. If you were to invest in that, you wouldn’t be happy with tiny amounts over too long. You’d want as much money as possible per payment period. The only limiting factor there is (obviously) the market’s unwillingness to take loans that are high interest or ones with ludicrous amounts per month.
Mortgage Rates vs. The Economy
The stability of the economy as a whole has a massive influence on the mortgage market as a whole. To sum it up quickly, the better things are going, the higher the rates are going to be. The worse things are, the lower. This follows the pattern of how the market thinks – when things are good, they can afford higher mortgage rates. When things are worse, the inverse is the same. Everything can influence mortgage rates – the stock market, foreign affairs, inflation, employment, etc. Correlation and causation lines are blurred here for sure, but it still serves as an excellent short-term benchmark for spotting trends.
The business itself may even have a bearing on rates. Good business means higher rates. Poor business means they’ll have to lower rates to stay competitive with other companies. May not be the simplest thing in the world to determine, but still good to know nonetheless!
Every Bit of Help Counts!
Even with a solid grasp on the matter at hand, it can still be too much to handle. Thankfully, First Choice Mortgage is here with time, knowledge, and resources available to you to get your mortgage underway! We’ve been in the business for years upon years, and we look forward to taking care of you, however possible. Give us a call today!
