A Step-by-Step Guide to Predicting Your Mortgage Rates

Many consumers, especially first-time home purchasers, look around for the lowest mortgage rate they can find, not realizing that rates fluctuate. Understanding mortgage rates will help you choose one that works for you and may even be cheaper than the one you're ready to commit to today.


Here's how they work.


The first thing to remember is that these rates are volatile. They do. It could be low tomorrow. These rates used to be more constant. The bank set them. Since the 1950s, Wall Street has taken control and altered them to market forces. Wall Street linked them to bonds. So when Wall Street buys and sells bonds, mortgage rates fall.


Who tells me the bond rates?


It's simple: track bond prices to know when to shop for a mortgage. Sadly, only Wall Street has access to this information (called MBS data). They spend tens of thousands of dollars for real-time access.


How to make an educated guess:


Calculate using the 30-year mortgage rates.


In any given 30 years, these occurrences lower rates:


Low inflation promotes demand for mortgage bonds.

Economic data that is weaker than predicted, increasing demand for mortgage bonds

War, disaster, and calamity enhance demand for mortgage bonds.

On the other hand, growing inflation rates, positive economic data, and a "calming" of a geopolitical scenario tend to lower rates.


Common mortgages and rates


Mortgages might differ based on your credit score. A higher credit score means a lower mortgage rate.


Rates vary by loan type.


There are four major loan categories, each with a distinct interest rate. This level of interest is dependent on mortgage-backed bonds. The four loan types account for 90% of all mortgage loans issued in the US.


Which mortgage loan?


The list:


The loans are backed by Fannie Mae or Freddie Mac, who set the rules and restrictions. The Fannie Mae mortgage-backed bond is linked to Fannie Mae mortgage rates. By way of Freddie Mac, mortgage-backed bonds are connected.


The "normal" 30-year fixed-rate mortgage for borrowers with 20% down or more; the HARP loan for underwater borrowers; the Fannie Mae HomePath mortgage for buyers of foreclosed properties; and the equity-replacing Delayed Financing loan for cash buyers.


2. FHA mortgage - These are FHA mortgage rates (FHA). The benefit of these loans is the minimum down payment of only 3.5 percent. They are so widely utilized in all 50 states. The disadvantage is that the premium is shared.


FHA mortgage rates are based on GNMA mortgage bonds (GNMA). Investors dubbed GNMA "Ginnie Mae." As Ginnie Mae bond prices climb, FHA mortgage rates fall. On can get a 203k construction bond for $100 down or an FHA Back to Work loan for homeowners who have lost their house to a short sale or foreclosure.


3. VA mortgage interest rates are likewise influenced by GMA bonds, which is why FHA and VA mortgage bonds often move in lockstep. That's why both move at a different pace. So, some days will show high conventional rates and low VA/FHA rates, and vice versa.


For example, the VA Energy Efficiency Loan and VA Streamline Refinance are both insured by the Department of Veterans Affairs. VA mortgages also provide 100% financing to veterans and active-duty military without mortgage insurance.


USDA mortgage rates are related to Ginnie Mae's secured bonds (just as FHA and VA mortgage rates are). Although insured by the government, USDA rates are often the most affordable. USDA loans are offered in rural and urban areas. The program offers no-money-down mortgages to US purchasers.


2016 mortgage rate forecasts


Do you want to know your chances of receiving a good mortgage rate this year? Don't ponder.


Here are the 30-year predictions:


(2016 Fannie Mae mortgage rate forecast: 4.4%)

Freddie Mac predicts 4.7% Q1 2016 and 4.9% Q2 2016.

The MBA predicted 5.2 percent in 2016.

NAR predicted 6% in 2016.

In other words, mortgage rates will likely climb in 2016.





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