This week, in typical fashion, investors looking to escape volatility in oil prices and stocks sought the safety of government bonds. This could mean good news for home buyers, as mortgage rates usually follow the direction of long-term government bonds.
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Indeed, the benchmark 30-year fixed-rate mortgage fell to 3.98% from 4.05%, according to Bankrate's Jan. 20 survey of large lenders.
“When there’s stock market instability, sometimes bond rates are better,” said Mortgage Broker Francine Silberman DiSesa, president of Asset Center Mortgage in Armonk, New York. “By and large, the perception is that … bond activities are the greatest influence on mortgage rates.”
According to Fannie Mae’s latest monthly Home Purchase Sentiment Index (HPSI) survey, most consumers believe mortgage rates have hit a bottom, and are poised to climb. However, according to The Mortgage Reports website, consumers are traditionally wrong when it comes to predicting the direction of mortgage interest rates.
Here are the most common myths about mortgage rates – and the realities.
MORTGAGE RATE MYTH #1
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Rising interest rates means rising mortgage rates.
According to many lenders and realtors, when home buyers hear that the Federal Reserve is raising interest rates, it can send shivers of horror down their borrowing spines.
“They all think there is a direct correlation between federal monetary policy and mortgage rates,” said DiSesa. “And there isn’t.”
MORTGAGE RATE MYTH #2
When the stock market is down, mortgage rates go up.
“People influence the market by fear,” DiSesa continued. “Stocks are taking a massive pummeling and people think its tied to the mortgage rate, and that it will go up, but that’s not the case. ... People think they can predict mortgage-rate policy -- that what happened in the past will happen in the future. But mortgage-rate pricing has no trending.”
MORTGAGE RATE MYTH #3
Borrowers can get the best rates from their home banks.
“The biggest myth is that their home banks will honor them,” said Robert Cabral of Charles Rutenberg Realty based in Long Island, New York. Many of the first-time, working-middle-class home buyers that he works with, he said, “put their trust in their personal banks. I try to make my clients aware that they have choices. An aware client has more advantages.”
MORTGAGE RATE MYTH #4
Mortgage rates are set in stone.
Consumers see mortgage rates advertised at their banks and on TV, or go to an online calculator and assume the rate posted is the rate they will get. Not so, say the experts.
Factors that can effect a home buyer’s mortgage rate include the size of the loan, the amount of risk buyers and lenders are willing to take, credit scores, available cash, credit history, loan term, points and more.
“It’s not one-size-fits-all,” said DiSesa. “Understanding the dynamic and gestalt of pricing a loan--no one understands it until it is shown to them.”
Cabral agrees. “Most people don’t understand mortgage rates at all,” he said. “They understand interest rates but not the APR and the long-term realities of a 20- or 30-year loan. ... They don’t understand the technicalities. ... Mortgage rates are fluid, and the knowledgeable sometimes get better deals.”