Terms Affecting Mortgage Rates

Mortgage Rates

Rates provided from Freddie Mac every Thursday and for informational purposes only, not intended as advertisement. Rates include points. Click here for more details

If there are additional terms that you would like to know more about leave a comment below and we will add it to the list.

Bear Market–A “bear” is someone who believes the market or a stock will drop in value. Generally, a fall of 20 percent is the benchmark for describing a bear market.

Bond– An ‘IOU’ in which an investor agrees to loan money to a company or government in exchange for a predetermined interest rate.  the length of the payback period could be as short as day or as long as 30 years.

Bull Market–A “bull” is someone who believes the market or a stock will increase in value. Generally, an increase of 20 percent is the benchmark for describing a bull market.

DJIA–Dow Jones Industrial Average–Also referred to as the Dow Jones, or simply the Dow, is one of several stock market indices.  The Dow is among the most closely-watched benchmark indices tracking targeted stock market activity.  If stocks are performing well, typically MBS are down, which will lead to increased mortgage rates.

Economic reports–These indicators track activity investors find to be significant to economic performance.  Analyzing these reports helps investors determine if the economy is growing, shrinking, or standing still.  Knowing what investors expect to see when the reports come out, helps us quickly evaluate the actual reported data.  If investors excpectations are exceeded, stocks ususally do well and MBS suffer, which could lead to increased mortgage rates.

Fed–The Federal Reserve–America’s central bank that controls the amount of money in our economy. The Fed also regulates the cost of borrowing.  Investors listen to the Fed very closely for any sign that they may make adjustments to speed up or slow down our economy.  The current Fed Chairman is Ben Bernanke.

Fed Funds Rate–The interest rate at which private depository institutions (mostly banks) lend balances (federal funds) at the Federal Reserve to other depository institutions, usually overnight. It is the interest rate banks charge each other for loans. The federal funds target rate is determined by a meeting of the members of the Federal Open Market Committee which normally occurs eight times a year about seven weeks apart. The committee may also hold additional meetings and implement target rate changes outside of its normal schedule. The Federal Reserve uses Open market operations to influence the supply of money in the U.S. economy to make the federal funds effective rate follow the federal funds target rate.

GDP-Gross Domestic Product–The broadest measure of aggregate economic activity and encompasses every sector of the economy. Represents the total value of the country’s production during the period and consists of the purchases of domestically-produced goods and services by individuals, businesses, foreigners and government entities.

Locking– An agreement between a mortgage lender and a consumer establishing an interest rate and points that will be accepted by both parties at closing even if rates or fees change prior to loan funding.

MBS–Mortgage Backed Securities–Securities issued by financial institutions to investors with the payments of interest and principal backed by the payments on a package of mortgages.  The more an investor is willing to pay for a MBS, the lower the rate that is passed on to a borrower.  It is good news for rates when MBS prices are higher

Stock Market–Stocks are bought or sold. The “market” refers to this activity. There are organized exchanges, such as The New York Stock Exchange, that buyers and sellers go through to place the transactions (or trades).

Treasuries–Government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States Federal government. Treasury bills (or T-Bills) mature in one year or less. Treasury notes (or T-Notes) mature in two to ten years. Treasury bonds (T-Bonds, or the long bond) have the longest maturity, from twenty years to thirty years.