The general population is usually unaware of the reasons why the mortgage rates vary so greatly. The truth is that the mortgage lenders are not to blame. The ones who drive the mortgage rates are the secondary market investors.
The secondary market can very well affect you as a would-be homebuyer. The investors always want to earn the best possible return, naturally. This return is influenced by the anticipated and the current condition of the economy. As the economy is on the rise, the investors will hold off their buying, waiting for the yields to grow. This means that lenders are not able to sell their loans at low yields, fact which drives the mortgage interest rates up.
However, there are many factors which influence these interest rates. This includes the levels of inflation and unemployment, the federal funds rate, as well as the trends of the stock markets. If you are interested in taking a mortgage, you should keep an eye on all these factors.
As investors are allowed to buy the mortgage-backed securities, the secondary market provides liquidity for the industry of mortgage. The safest debt securities are considered to be the treasury bonds, so the yields on mortgage-backed securities should be higher than intermediate-term Treasury bonds. Thus, any change in the Treasury bond yields can indicate changes in the mortgage rates before they occur.
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