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Homebuying 101–Part 7: Moving Rates

Pricing Adjustments How to Shop for Your Loan

The rate you can get today is probably different from rate you could have gotten yesterday. Rates are constantly on the move. Here’s how that works.

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Interest rates change just about every day, and sometimes once or twice during the day. There is a reason for this. You probably know that mortgages are sold to investors. Fannie Mae and Freddie Mac are both investors; they buy mortgages from companies like B of A, Wells Fargo and the like. These mortgages are pooled into a kind of bond called a “Mortgage Backed Security,” and they are bought and sold on Wall Street just like stocks and other kinds of bonds. When the investors are mostly buying them, their price goes up, and when they sell them, the price goes down.

Lenders watch the price of the mortgage bond because that tells them what they’re going to be able to sell your loan for. When the price of the bond goes up, the rates come down.

What makes the investors decide to buy or sell? It’s pretty simple: a lot of it is driven by fears of inflation. When they think we’re going to have more inflation, they sell. When they think we’re going to have less inflation, they buy. So when you listen to the news and hear that the Consumer Price Index was lower than expected, you can expect that rates may come down a bit.

To give you an idea of how much that movement in rates is, the normal play of the market affects rates by about 1/16 of a percent from one day to the next.