Ask the Expert

I have noticed mortgage interest rates rising a bit in the last month or so. What is causing this?

Since mortgages started being sold off in the secondary (investment) market some twenty or more years ago, interest rates on long-term, fixed rate mortgages became very closely tied to yields in the bond market. Mortgages are packaged up by large lenders, or quasi-governmental agencies, such as Fannie Mae, (Ginnie Mae in the case of FHA and VA) and sold as mortgage-backed securities through investment brokers. This is handled much the same way as one could purchase a bond with “General Motors” or even a local municipality looking to raise funds or offset other obligations. Bonds represent the debt of a corporation, or issuer of the security, as opposed to stock which represents an ownership interest or “share” in the ownership of the issuer.

Presently, it’s pretty much a situation of supply and demand in the global arena of investment opportunities and the bond and mortgage-backed securities markets have been taking a small hit as investors, large and small, have opted to purchase investments other than bonds and mortgage-backed securities. As money flows out of these investments, prices drop and the yields rise as issuers attempt to continue attracting investors to keep the cycle of funds going. Consequently, interest rates, which are directly tied to yields in the bond market, begin to rise. As interest rates have not risen very much, but may continue to do so, this may be the best time this year to make that move to a new home. Contact your Realtor for more information and to find ways to lock into a good deal today!

Barbara Cunningham

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