Financing in California>Question Details

Kristal Kraft, Real Estate Pro in Greenwood Village, CO

What makes mortgage rates go up and down?

Asked by Kristal Kraft, Greenwood Village, CO Sat May 12, 2007

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Mortgage interest rates are based on mortgage bonds which are traded just like stocks. Various economic indicators influence mortgage backed securities. Such as the Jobs Report and Consumer Price Index (both measure forms of inflation).
The Feds Funds Rate directly impacts the prime rate which is what home equity loans (helocs) are based on. Investors will react to this as well, so it influences mortgage backed securities.
2 votes Thank Flag Link Sat May 12, 2007
Great question. Rhonda is correct when she says that mortgage-backed securities drive mortgage rates, not the treasury securities that so many think. Economic events that affect mortgage bonds are sometimes different from the events that affect treasury securities. Any originator that tells you "treasuries" doesn't know what he/she is talking about. Four questions to asj originators are in the link
2 votes Thank Flag Link Sat May 12, 2007
What makes interest rates go up and down on a daily basis is the bond market. Bond traders look at a number of different indicators and attempt to second guess the actions of the Federal Reserve. The Federal Reserve looks at the economy in general and inflation in particular and attempts to regulate them by increasing or decreasing the amount of money in circulation by making money more or less expensive. They do this by a number of ways, the most prevalent being raising or lowering the "Federal Funds Rate". If you think about it the economy is like a car and the Fed is like the driver. If the car starts to slow down on a hill, the fed will apply the gas (lower rates) if the car starts to pick up too much spend coming down a hill it will apply the brakes (raising the rates).
1 vote Thank Flag Link Sat May 12, 2007
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