That sound you hear is from people patting themselves on the back. Which replaced the sound of people kicking themselves in the pants. Those people are the ones that missed out on record rates last November. Rates are lower still, and people are refinancing in droves. Again. But you'll need to be quick on the draw when you find a rate that suits you. Rates can change in a matter of minutes. How can lenders change rates so fast?
Interest rates associated with fixed instruments like T Bills, Treasury Bonds and Mortgage Bonds have been moving more in the traditional sense over the past two months. Stock Market up, Interest rates up. Stock Market down, Interest rates down. In fact, I can anticipate what mortgage rates will be every morning simply by watching the Dow Jones Industrial Average pre-market indicators. If the DJIA is anticipating losses at opening bell, then interest rates will probably be a little better by the time get to my office. Then again, at lunch time interest rates can get worse. Then better. Then worse.
Mortgage lenders typically set their interest rates early in the morning for that days' pricing. They also have someone glued to the computer screen watching something called mortgage bonds. Mortgage rates are tied to these mortgage bonds and as these bonds are traded the price can fluctuate. A service that I use to monitor such movement is at which allows me to watch mortgage bond prices updated every few minutes. If prices rise, then rates will fall (interest rate yields flow in the opposite direction of its price). If prices fall, then interest rates will rise.
It's not practical for lenders to change their interest rates if bond prices have moved just a few basis points (a basis point is 1/100th of a percent). Making an intra-day price change is not something lenders look forward to, it takes some effort to recalculate rates and terms to forward to their mortgage operations. But if mortgage bonds make dramatic swings then the lender will take some action. What's a dramatic swing? Many lenders will make a rate change if mortgage bonds move 25 basis points either on a day to day basis or an intra day rate change.
Why the volatility? When the stock market gets nervous it may take some time for either the Bulls or the Bears to win out over the long term. In the meantime, the stock markets can see wild swings from day to day. One day we're up 200 points, the next we're down 200 points. And mortgage bonds can be just as volatile.
That's why rates can move daily. If you got a rate quote from your lender yesterday morning don't assume that the rate is still there, it may very well not be. Things can move awfully fast. And especially if you're "rate shopping" it's important not only to compare interest rates on the same day, but you should also check interest rates at or near the same time of day. If you find a rate that suits you, lock it in. It may not be there this afternoon.
Published: August 16, 2002
