Understanding Mortgage Rates | dripp inc | Home Equity | Refinancing and Remortgage Guide

Good Afternoon,

The 10-year bond yield is currently up to 4.03%. As expected rates adjusted accordingly by increasing by at least a quarter of a discount point. We see this upward trend as likely to continue through the end of the week. Protecting your program should be your first priority if you are purchasing or refinancing your home.

Here’s the inside Dripp…

The effect of Fannie Mae’s quarterly losses in conjunction with a stock market rally all morning and afternoon pushed interest rates up again today. A few lenders even re-priced twice. We mentioned before that the benchmark driving interest rates is the 10-year bond and as it moves, interest rates move as well. We have also mentioned that as time goes by the spread between the 10-year bond and interest rates has been widening. For example, mortgage interest rates should be about .25% - .5% lower if you compare the historical relationship between them and the 10-year bond. This widening margin seems to be continuing. What that means to you is that mortgage financing will become more and more expensive. Fannie Mae has already mentioned that they will raise rates and fees to help them through this period of losses they are experiencing.

Here is news to look for throughout the week:

- Wednesday – July’s Retail Sales report: This is a very important report due to the fact that consumer spending makes up two-thirds of the U.S. economy. If the PPI report shows a smaller than expected increase in sales could help the bond market and as a result lower interest rates. A greater than expected increase in sales could hurt bonds and as result raise interest rates.
Consensus – 0.5%

- Thursday - Consumer Price Index (CPI): The third relevant report, which is scheduled to be released on Wednesday, is the Consumer Price Index (CPI). This report is the most important report for this week because it measures prices at the consumer level of our economy. A stronger than expected read will surely increase mortgage interest rates.

- Friday - University of Michigan’s Index of Consumer Sentiment: measures the consumers’ feeling about their own finances. If people are not confident in their finances they are more likely to not make large purchases, which causes investors to place their money into the safer bond market.

Simply Put: Rates have been continuing the upward trend due to Fannie Mae’s announcement that financing will become more expensive for the consumer. Also, the stock market has been rallying, which does not help the bond market and rates have increased accordingly. There are a few reports coming out this week that may affect rates and we will keep you updated. Our suggestion is to lock your mortgage rates if you are purchasing or refinancing due to all the volatility ahead.