What’s Really Happening With Mortgage Rates

I’ve got a secret for you, in case you haven’t seen it, don’t tell anybody, but mortgage rates are up. I’m being facetious of course, unless you’ve been living under a rock, you’ve probably seen that mortgage rates are up and especially if you’re in the real estate business, you know that real estates are up and people that are buying a house, if you’re watching this video, if you’re considering buying a house or if you have talked to us and you’re pre-approved and you’re out looking, it’s something that a lot of people are seeing and realizing that payments are higher now compared to six months ago.

I wanted to share with you a little bit about what’s going on with this and what the industry behind mortgage rates is seeing right now, the kinds of signals we’re getting from mortgage-backed securities and from what the back-end investors are giving us on the mortgage side. So basically mortgage rates are increasing because of inflation. Inflation is the enemy of the bonds that back mortgages and causes rates to go up. However, as inflation increases, as the Fed increases their rate which is different than mortgage rates, there is fear of a recession coming and in a recessionary environment, interest rates improve historically. This happens every time we’re in a recession, and what we’re seeing on the backend from the investors that are behind these mortgage-backed securities is they’re not giving lenders like us the same kinds of yields.

In other words, they’re not paying the same amount for those mortgages. So what happens behind the scenes is you close on your house, we have a mortgage debt there, and there’s a back-end investor that’s behind that mortgage that has a bond that backs it basically and they’re not paying the same, it’s about half of what we saw six months ago. Why is that happening you might be asking yourself. The reason why is because when those investors are looking at those investments, they’re looking at the duration of that investment, how long are they going to have that mortgage in their portfolio so they can get a return on that in the form of your mortgage payments basically is the easy way to explain it. So they need to hold that mortgage for a certain amount of time to make it profitable. They don’t want that to be paid off sooner.

The reason why they’re offering less yield or less … Why they’re packing less on the backside for these mortgages is because they have a fear that people are going to refinance pretty soon, soon being within the next 6 to 12 months. So they’re signaling to the market that they have some concern over what’s happening with the economy, that they think that we’re likely heading to a recession. It’s possible we’re already in a recession, there’s a lot of data that suggests that, and if we head to a recession, rates are likely to improve. They’re likely to go down. So we’re seeing that signal to us by what these investors are seeing behind the scenes.

I don’t want to get too technical today with that. Hopefully that all made sense but I wanted to relay this to you as good news as to where the industry behind the scenes is thinking that mortgage rates might go, that we’re going to perhaps see some relief here in the next 6 to 12 months. Now no one of course has a crystal ball, we don’t know exactly what’s going to happen. That may or may not play out that way, but this is some good news perhaps if you’re buying a house or if you have bought a house in this higher interest rate environment, we could have an opportunity here in the near future to refinance to a lower rate. If you have questions about what I explained here, if there’s a part of it that didn’t quite make sense, I’m happy to explain it to you more in-depth, to look at your situation, talk about payments, and strategies on how to handle this situation moving forward and get in the best possible financial position.

So give me a call, text or email. I appreciate you guys watching today and have a great rest of your day.