Misconception Buster: What Really Makes Interest Rates Rise and Drop?

We have seen a lot of new buyers in the Real Estate market caused from the fear of rising interest rates. What determines if rates will rise or drop? There are a few misconceptions that Ralph DiBugnara wants to clear up for homebuyers.

INTEREST RATE MISCONCEPTION #1

Mortgage interest rates are not based on the 10-year treasury note as a lot of professionals and news outlets will tell you. They are determined by the price of mortgage backed securities. As a matter of fact, sometimes interest rates and the 10-year treasury note will move in completely different directions from each other. If someone isn’t advising you the right way, you could make a bad and hasty decision.

What are mortgage-backed securities you might ask?

A mortgage-backed security, or often referred to as MBS, is a type of asset-backed security that is secured by a mortgage or a pool of mortgages. The point of mortgage backed securities is to help smaller banks lend money to customers. Simply put, the smaller bank works with investors to lend the money to the homebuyers. For more on a mortgage-backed security, click here.

INTEREST RATE MISCONCEPTION #2

The federal reserve, many times referred to as simply the fed, raising or cutting interest rates should not make you panic either way. Most times the change in the short term borrowing rate won’t affect long term mortgage rates. Don’t wait around for a fed cut or raise of rates, if you are comfortable at your payment for current interest rate go for it. Don’t gamble! Not sure how much you can afford? Click here for tips to find a number that works for you!

What happens with fed cutting and raising interest rates?

Whatever is going to happen whether an increase or decrease, it will happen slowly it’s not like they raise rates and there is a huge jump tomorrow. But what you will also see is by the time the news outlets report a change in rates it’s too late. Make sure you are talking to a mortgage professional who is tracking rates daily.

Looking for more information on rates? Reach out to us over here at Home Qualified and we would be happy to help answer them!

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