American Mortgage Blog

As we start 2012, the housing, and mortgage, industry is in a very interesting position. Interestingly, looking back over the past several decades, many analysts believe that this year will be a great time to obtain a new mortgage. So although economic uncertainty (isn’t there always economic uncertainty?) is still present, and loan documentation requirements have increased, housing prices and low mortgage rates have made homes incredibly affordable.

Sometimes borrowers ask, “Why don’t your rates match the ones I see in the newspaper?” It is easy to quote rates out there, but every borrower should remember that their loan is different, and that often the advertised, or publicized, rates are slightly higher due to a number of factors.

Our agents are sometimes asked, “Why are mortgage rates different?” It is important for borrowers to remember that mortgage rates and interest rates in general, are determined by different factors, so an understanding of how mortgage rates are determined will help to better understand how banks and mortgage lenders set interest rates.

Every loan scenario is different, with different amounts, different borrower credit scores, different types of housing etc. – dozens of variables - and each loan must be priced accordingly. The predominant factor in determining interest rates and prices, however, is the risk of default risk, which is called “risk-based pricing.” The higher the risk, the higher the rate.

There has been a lot of gloomy news about the nation’s housing market in recent months, and even farther back. But there is good news, and it is not hard to find.

First, many people in their 20’s and 30’s are now finding that properties in some areas have come down in value to the point where they can buy their first home. Housing prices, especially on the lower end, may soon begin to rise quickly, argue some economists, and that the correction in house prices and the low level of home building is really the cure for the housing industry's problems.

In the last few weeks interest rates have been relatively stable, but slightly declining. Market concerns over weaker economic growth in the near term that could lead to a decrease in inflation have sparked a drop in bond yields and mortgage rates followed. For instance, several economic indicators have either met or are below what analysts forecast for them. Rising consumer sentiment, which in turn tends to lead to a willingness to spend and stimulate the economy, has not happened.  As a result, interest rates for 30-year fixed mortgages this month were the lowest of 2011, per Freddie Mac.

Recently mortgage rates have been inching up. Although they are still very good by “historical standards,” rates are currently higher than where they were in the autumn of 2010.