Why Are Rates Different By Day & Lender?

Mortgage rates do fluctuate from day to day and from lender to lender. Please read our article on What Are Today’s Rates to get a basic understanding of how rates are determined and with that understanding the explanation below about why rates are different by day and by lender will be easier to understand.

The demand to purchase mortgage bonds (MBS) fluctuates, just like the demand for any other product, based on what’s going on in the economy with jobs, housing, consumer confidence, and world events. When the economy is strong – plentiful jobs, consumer confidence is high - bond prices go down (like going on sale!) so they will be more attractive to buyers on Wall Street. When bond prices go down (like going on sale!), mortgage prices have to go up to make up for the lower rates that those in the secondary market are making on their MBS.

Conversely, when the economy is not doing well - like during the Great Recession - more investors want to buy into the safety and security of the bond market (rather than being invested in the stock market), so the secondary market can charge more for their MBS and prices go up and mortgage rates go down – like mortgages are going on sale, so to speak.

For the past few years, since the housing market crash in 2008 when few investors wanted to buy MBS, the Federal Reserve stepped in and said they would buy MBS to help the housing market recover from the crash. This program is called Quantitative Easing (QE), which means the Fed has been buying about $85 billion a month worth of MBS. Pretty good customer, eh?  The QE stimulus program has helped keep mortgage rates low; however, when the Fed decides to wind down their purchases of MBS many speculate that rates will rise as the supply and demand for MBS will have to readjust once a big customer bows out of the market.

Why do different Lenders’ rates vary? Yes, prices of mortgages may vary from lender to lender but usually it’s not by much and it generally has to do with capacity. Lenders make educated guesses about how many loans they can originate in a given period of time so they only drawn down enough money from the secondary market based on what they need, their capacity. So based on their capacity the rates they can offer to borrowers are set by the secondary market.

Often you may see bargain basement rates offered online or on billboards. Those quoted rates are generally used to draw your interest and usually very few borrowers can or want to qualify for those loan programs. So, it’s best to steer away from chasing low rates and instead work with a lender and a loan officer you can trust for the long term.