User Guide

Market Direction This box provides you with an instant guide as to whether mortgage rates and points are moving up or down. When the indication is that a "sharp" change is taking place, it usually indicates two point loan rates have moved up or down an eighth of a percent, which would coincide with a change in mortgage points of .375 to .500, a difference of $375 to $500 in origination fees on a typical $100,000 fixed rate loan.

The other element is "volatility," in other words, how unstable the situation in the markets has become. This indicator will normally reflect a low or high reading, but when there are wild gyrations, the word "extreme" will be used. This may occur as a result of a dramatic rise or fall in the Dow Jones Industrial Average, which occasionally has a direct impact on mortgage yields.

Interest Rate Trends Here, the long term indicator gives an opinion of which way mortgage rates may trend over the next 4 to 6 weeks. While not infallible, the market generally follows a trend for a period of time, whether it be up, down or flat. The trick is to spot trend changes, and this indicator may help you to discern those turning points.

The short term indicator will normally fluctuate more often than the long term guide. That's because sentiment often shifts on a daily or weekly basis, depending upon outside influences, as Wall Street traders attempt to gain an edge on their competitors by outguessing each other.

Commentary The daily narrative, which usually comprises three paragraphs, is designed to give home owners and those considering a refinance transaction background information on WHY mortgage rates are moving up and down so that they may better gauge the present lending environment. The commentary is not confined to a pure discussion of market mechanics, but often covers world and national economic developments which are either having an impact on rates right now, or may have an influence in the weeks ahead.

U.S. Treasury Bonds This grid provides you with a look at the 30 Year Bond and the 10 Year Note yield and how much they have changed from the beginning of the day to the moment of the update, as listed at the top of the page. While you cannot automatically translate U.S. Treasury yields into mortgage rates, the Treasury figures give you a benchmark to follow. For example, if the 30 Year Bond is at 6.00% in May and 5.00% in October, that usually signifies a roughly one percent drop in mortgage rates, even though the actual mortgage yield will depend upon the number of discount and origination points paid for a particular product.

Mortgage Point Change If you think about it, there is no such thing as a "rate" in the mortgage lending world. You can have any rate you want (within reason), depending upon the number of points you are willing to pay. For example, a 7.00% rate with zero points (APR 7.00%) is equivalent at the same moment in time to a 6.75% rate with 1 point (APR 6.875%) or a 6.50% rate with 2 points (APR 6.750%). As you will note, one point (1% of the loan amount) is roughly equivalent to a quarter percent in the note rate. Therefore, if the grid shows a -1.00 indication, you may reasonable conclude that "rates" have dropped a quarter percent in yield. Using the above example, that would infer the zero point loan had changed to APR 6.75%, while the loans charging points had fallen by a similar amount.

National Average Rates These figures are based upon the Freddie Mac press release, which comes out late each week. Freddie Mac is an acronym for the Federal Home Loan Mortgage Corporation, one of three government sponsored enterprises which make cash available via lenders to the general public for home financing purposes. These interest rate data take into account regional differences, and often lag the actual mortgage rate environment because of the time delay involved in collecting the information. And most lenders do not offer rates in anything other than one eighth of a percent increments. But the Freddie Mac figures may help you avoid paying too much for your loan by providing you with a benchmark for rates offered by originators to their most credit worthy borrowers.

Key Interest Rates The 1 Year T-bill is often associated with the adjustable rate mortgage market. However, ARM rates do not change as frequently as fixed rates, so the T-bill indicator's value is that it shows which way the trend is heading, and also may be valuable in gaining an idea of how much an ARM will be adjusted on its anniversary date if the index used is based upon the T-bill's level.

The 11th District Cost of Funds Index is determined by the Federal Reserve Bank of San Francisco, and is most popularly used in certain "COFI" loans which often have a six month adjustment period. It used to be thought that the COFI was more stable and perhaps more advantageous to the consumer as an adjustment mechanism for ARM loans. But it is not necessarily lower than the 1 Year T-bill yield, particularly during times of interest rate volatility.

The Prime Rate is the rate charged by the nation's banks on short term loans to their best customers. On occasion, there can be more than one prime rate in effect, since banks are not all required to have the same one. Where there is a variation, the one listed here will be the one published in the Wall Street Journal.

The Discount Rate is the rate charged by the Federal Reserve Bank of New York when a federally chartered bank wishes to borrow cash directly from the Fed. It is rarely changed.

The Fed Funds Rate is the overnight rate charged by banks when they borrow money from each other. The Federal Reserve Bank of New York constantly monitors this rate, and will either inject or withdraw funds from the banking system in order to maintain its level at the target stipulated by the Federal Open Market Committee. The Fed enters the market at 10:30AM ET on just about every business day to make the necessary adjustments. The FOMC meets every 6 weeks to review interest rate policy. When deemed appropriate, the FOMC will change the Fed Funds Rate to either add or remove liquidity from the economy.

Disclaimer The information presented above is a guide to understanding the data presented on a daily basis. However, the ultimate decision on whether or not you should lock your loan is yours. There is no crystal ball or soothsayer who can tell you what to do. But by following the markets on a daily basis, you should gain insights which may help you to make an informed lock/float decision.

Reliance on information, recommendations and opinions stated herein is at the risk and discretion of readers.