What Moves Mortgage Rates? The Role of Mortgage Backed Securities
NorCal Mortgage
NorCal Mortgage CA
Published on February 16, 2024

What Moves Mortgage Rates? The Role of Mortgage Backed Securities

In the ever-evolving landscape of the housing market, understanding the dynamics of mortgage rates is crucial for both first-time homebuyers and seasoned investors. One of the less understood but critically important aspects of these rates is their connection to mortgage-backed securities (MBS). This blog post aims to demystify this relationship and highlight the importance of having a knowledgeable mortgage broker by your side.

The Connection Between Mortgage Rates and Mortgage Backed Securities
Mortgage-backed securities are essentially bundles of home loans sold in the securities market. These bundles are formed when a financial institution, like a bank, sells its mortgages to a government-sponsored enterprise (GSE) such as Fannie Mae or Freddie Mac. The GSE then pools these loans together and sells them as MBS to investors. The return on investment for these securities is funded by the mortgage payments made by homeowners.

The yield on these securities directly influences the interest rates on new mortgages. Here’s how: investors in MBS demand a certain yield, which is essentially the return they expect on their investment. This yield is influenced by various factors, including the Federal Reserve’s policies, inflation expectations, and the overall demand for these securities. When the yield on MBS rises, the interest rates on new mortgages typically increase as lenders need to make the new loans attractive to investors. Conversely, when the yield on MBS falls, mortgage rates tend to drop.

Daily Fluctuations in Mortgage Rates
Mortgage rates can change daily because the MBS market is highly dynamic, reacting to a wide array of economic indicators, geopolitical events, and changes in investor sentiment. Factors such as inflation reports, changes in employment rates, and decisions by the Federal Reserve can cause investors to buy or sell their MBS holdings, which in turn affects the yields on these securities and, consequently, mortgage rates.

The Importance of a Mortgage Broker
Given the complexity and the daily fluctuations in mortgage rates, having a mortgage broker who monitors these changes can be invaluable. A knowledgeable broker can:

  1. Provide Timely Advice: By keeping an eye on the MBS market, a broker can advise when to lock in a mortgage rate, potentially saving you thousands over the life of your loan.
  2. Offer Access to Better Rates: Brokers have access to a variety of lenders and can often secure more favorable rates than individuals can obtain on their own.
  3. Customize Solutions: They can tailor mortgage products to fit your specific financial situation and goals, considering not just the current rates but also the future outlook of the MBS market.

The relationship between mortgage rates and mortgage-backed securities is a fundamental aspect of the housing market that can have a significant impact on your mortgage costs. As these rates fluctuate daily based on the dynamics of the MBS market, having a skilled mortgage broker who understands these nuances can be a game-changer. They not only provide insights into the best times to secure a mortgage but also ensure that you get a deal that aligns with your financial goals. In the complex journey of home financing, a mortgage broker is not just an advisor but a valuable partner who can navigate the intricacies of mortgage rates and mortgage-backed securities on your behalf.

NorCal Mortgage
NorCal Mortgage CA
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