mortgage interest rate It fell for an impressive four days in a row. It hasn’t happened since late July, but there are a few things to keep in mind. First of all, the streak may be the longest in months, but it’s not the biggest. Interest rates fell at a faster pace than he did at the end of September, but in a somewhat volatile pattern.
Perhaps the bigger pitfall is that interest rates hit a 20-year high just before the current streak began, and it’s unlikely we’ll see a stronger improvement right after a big spike to long-term highs. It’s not that uncommon.
With all of the above being said, the benefits are not trivial. The average lender is down about 0.375% in the “note rate” (the rate actually applied to a mortgage, as opposed to the “effective rate” or APR that takes into account initial costs) since last Thursday. . The effective interest rate is a slightly moving target due to pricing issues presented by the illiquidity of the underlying bond market.
It’s a big word, but here’s the gist of it: In the normal case, the lender can sell the mortgage at a premium (i.e. the investor pays him $410,000 on a $400,000 loan, collects interest at a fixed rate, and pays interest over time). can benefit from it). relatively higher than non-premium scenarios).
Premium pricing requires a high volume of loans in a certain interest rate range and sufficient stability. Neither will be in 2022. Bonds that enable premium pricing are still in their infancy and not a highly liquid market. Also, the volatility is very high. For both these reasons, investors were reluctant to pay a premium for loans with relatively high interest rates.
In short, the lack of premium pricing has created a need for many borrowers to pay points, which until now they have not. Certain investors are now offering good premium prices, allowing certain lenders to raise interest rates slightly in exchange for far fewer points. The net effect was that the “effective rate” could move significantly lower even though the “note rate” was the same or higher. Influencing.
In the big picture, any long-term improvement in interest rates will depend on future economic data and specific events such as the Fed’s announcement next week. , traders are waiting to see if there are any hints about the Fed’s potential for more balanced growth at its upcoming meeting.