I was asked a question earlier this week, “Why are mortgage interest rates so volatile?” The answer is extremely complicated so I tried to come up with a way to explain rate volatility while not making her eyes gloss over with boredom. The easiest answer is profit and loss. Lenders only change rates when they believe they can make more of a profit (rates come down) or they are worried that their rate spread might be impacted (rates go up). This is a very simplistic way to view the mortgage market but in a pinch it will help a person who is not in the mortgage business to understand when the right time is to lock. For instance today the FNMA 30 year mortgage bond closed 25 basis points higher than when it opened this morning. This left lenders in a position to reprice conventional and FHA rates better. Why would they do this? In a word, profit. The lower interest rates are, the more deals they will close. But the lender will not allow their interest rate spread to be affected. So, by Monday if the Bond market is down, rates will go up. If you follow my twitter account @Hollander_FHA, you will see my tweets that tell you when to lock a rate or when to float with the market. When I say lock it means rates are going up and when I say float it means rates are coming down.

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