About Mortgage Rates

Learn the make-up of mortgage rates and where to find the lowest refinance rates for excellent or bad credit scores

There is a common misperception among those shopping for a refinance, that mortgage rates come down when the FED (Federal Reserve Board) cuts interest rates. In fact, one (FED Cut) has little effect on the other (Mortgage Rates), at least in the short term. For instance, the Federal Reserve cut interest rates by one-quarter of a percentage point on March 16, 2008 and quickly followed with a three-quarters of a percentage point cut on March 18, 2008. The 30 year Fixed Mortgage Rate responded by bouncing up from 5.65% to 6.37% while the key overnight lending rate to banks was reduced to 2.25%.

Why did Mortgage Rates go up while the
Fed is cutting?

Some might feel that banks are price gouging with the Fed's assistance, but that assumption would be incorrect. In reality, mortgage lenders have no control over the price of long-term loans. The main components that affect mortgage rates are inflation, treasury yields, and the "spread premium " between the 10 Year Treasury Yield (determined by bond traders worldwide) and the benchmark mortgage rate.

Fed Cuts affect the short-term rates for banks. The intent of these cuts is to lower borrowing costs for corporations so that they will invest and hire, but this projected growth can lead to inflation. This leads bond traders to demand a higher yield on their long-term bonds, which in turn, drives up mortgage rates. However, there can be a positive effect of Fed cuts on ARM (Variable Rate) borrowers. Adjustable mortgage rates are tied to many different indexes such as the One-Year Treasury Yield and the Libor (London Interbank Offered Rate), which tend to move with the Fed funds rate.

So, we know that mortgage rates are highly influenced by inflation and Treasury yields, but what is this thing they call the "spread premium "? The spread premium is the difference between the 10 Year Treasury yield and 30 Year fixed mortgage rates.

Historically, this spread has hovered in the 1.5% to 1.7% range, until the subprime meltdown and credit crisis reared it's ugly head. Since the beginning of 2008, the spread has been in the 2.6 to over 3.0 range! Fortunately for refinance shoppers, the Treasury yields are at historic lows, which is keeping mortgage rates at historical low levels. In fact, the treasury yield is currently at 3.466. If the current spread was even at the high end of historical spreads, the current 30 Year fixed rate would be at 5.12%!

The current high mortgage spread is being caused by perceived investor risk. Investors have been lining up to sell their mortgage-backed securities in favor of safer investments.

We may not see a significant reduction in the mortgage spread until the housing market bottoms, foreclosure rates come back in check, and lenders begin to increase activity. Still, refinance shoppers are in excellent shape with low mortgage rates still available due to the historically low treasury yields.

Good News for Jumbo Mortgage
Home Loan Shoppers

These high-cost mortgages have just got cheaper. The size of mortgage loans that can be guaranteed by Freddie Mac and Fannie Mae was raised by the Office of Federal Housing Enterprise Oversight. This will lower mortgage rates for those refinancing higher priced homes. Previously, Fannie and Freddie could only insure mortgages up to $417,000, also known as "conforming loans". A mortgage of over $417,000 was considered a "Jumbo" loan and typically carried a 1% or more increase in cost as compared to the conforming loan mortgage rates. This will lead to hundreds of dollars of savings per month for high-cost homeowners. The new loan limits vary by area based on local median home prices and go as high as $793,750.

Where to find the Lowest
Current Mortgage Rates

You now know what makes up the benchmark mortgage rates. So, where do you go to find the best refinance options? Is there really a difference?

Yes, there is a difference, and choosing the right refinance lender can save you hundreds monthly and multiple thousands over the term of your new home loan.

My Credit is Good to Excellent. What is my
Best Refinance Option?

A good to excellent credit score will qualify you for the greatest number of refinance program options at the very best mortgage rates offered. Simply put, you should get the best refinance program from a broker with access to multiple investors competing against one another for your business. A mortgage broker that utilizes software to pull all current competing refinance lender programs offered for your qualifying refinance loan scenario, will give you a distinct advantage. Add "Direct Lender" status with low negotiated guaranteed closing costs, and you will have a winning combination for the best mortgage rates and lowest fees for your refinance loan.

The Refinance ToolBox only works with home loan refinance lenders that meet all the previous criteria, and are available to you, should you decide to get a Free Mortgage Rates Quote with us.

My Credit is Not Perfect.
Can I Still Refinance?

We understand that everyone's credit is not perfect. In many cases, credit scores are affected by reasons beyond your control. Maybe you have had emergency expenses, sudden medical bills, increased tuition, and on and on. These unforeseen bills may be causing you to miss payments and make your credit score fall. The Refinance Tool-Box would like to help those with falling credit scores to get a refinance loan that will help the situation immediately and also to make sense for the future. We can help you with your refinance and qualify you for the very best mortgage rates on the market.

Those with poor credit scores can get low mortgage rates with a FHA refinance. In fact, those that qualify may receive lower mortgage rates than a comparable excellent credit qualified conventional refinance mortgage!

Check Out FHA Refinance Mortgage Program

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