Did you ever wonder why mortgage rates fluctuate so much and youre encouraged to lock in a rate?  Why cant they just stay the same for a few weeks or a few months.

Interest rates are a little like stock prices in that they change based upon supply and demand, and the rates are affected by inflation rates.  Additionally, they are impacted by the secondary mortgage market.

Every Monday, we post the Weekly Market Commentary that reviews the economic reports being released that week.  They detail what the report is, when its being released, and how it might affect interest rates.

What Is the Secondary Mortgage Market?

The secondary mortgage market is where loans and servicing rights are sold by market leaders Fannie Mae and Freddie Mac. and also purchased by investors such as mutual fund companies, banks, hedge funds, and teacher and municipal pension funds.  (see more information in this Yahoo! Homes blog post )

What are the other things that impact the rates?

From Homeguides  in the San Francisco Chronicle:

Growth

Inflation

A key concern during periods of economic growth is inflation. Inflation increases prices and deteriorates spending power in the economy, which slows growth. The implication for future homeowners is that inflation pushes mortgage rates higher as lenders increase interest rates to hedge against the effects of inflation on profits, making home buying more expensive.

Federal Reserve Board

Economic activity is measured nationally to determine the appropriate interest rate.

Money Supply

Although the Federal Reserve is unable to directly set interest rates, the agency can influence rates indirectly by increasing or decreasing the supply of money in the economy. By increasing the money supply, the Federal Reserve puts downward pressure on interest rates. Decreasing the money supply puts upward pressure on interest rates. Consequently, if the Federal Reserve decreases interest rates, mortgage rates come down and borrowing for a home purchase is cheaper and encourages home buying.

Weve written posts on how this is going to impact not only mortgage rates  but fees that are charged.  With all of these factors, rates can change frequently.

So Whats This Mean For You?

Work with a reputable mortgage loan officer.   A good loan officer will diligently monitor interest rates for their clients, and advise them of opportunities to manage their mortgage debt at a better rate. They will also let you know up front about industry trends that may impact your rate, and offer recommendations as to the best time to lock in a rate during the process.