Watching mortgage rates is just as crucial as finding that perfect home, because it can dramatically affect your purchasing power. It works like this, simply put, mortgage rates increase, the interest on your mortgage increases and that increases your monthly payment. And, when your monthly payment increases, that means you are only able to borrow less to match a similar monthly payment. Hence, you lose purchasing power.
Like the stock market, ideally, you want to “lock in” a mortgage rate when it’s the lowest. Of course, that can be very difficult with the plethora of other variables involved to find and purchase a new home. So, to narrow the risk, you want to try and predict where the mortgage rates will be, when it is time to finalize the loan for the home purchase. One of the best ways is to watch the movement or lack of movement of TNX.
What and Where do I find the TNX?
The TNX is a market symbol that tracks the 10 year interest rate Treasury Note. And, according to The Truth About Mortgage.com, “the average mortgage is paid off [house is sold] or refinanced within 10 years,” making the 10 year note a great measure to predict the direction of interest rates. So, if you observe the TNX moving upward, this is a sign that the mortgage rates will be moving higher as well.
The TNX is a common market symbol and can easily be found on Yahoo Finance. Near the top of the home Finance page, they list the Dow, S&P and Nasdaq and on the right of that section is an arrow that allows you to scroll through other notable market symbols. TNX is listed as the 10 year Treasury Note and simply click on that symbol for more graphs, info and where it is listed on the CBOE (Chicago Board of Exchange).
When do I use the TNX?
Most home purchases take between 30 – 45 days to go from a ratified contract to closing. Finding the right home can take much longer, but that is a good time to start watching the TNX. This is because of the unknown time frame of getting a ratified contract, ie you may fall in love with the first home you see or it may take several months.
Once you’re at the ratified contract stage, that’s when you really need to watch what is going on. The market and rates move daily and if you see a trend of the rates moving upward, you may want to “lock in” a good rate. And, if you see the trend moving lower, you may want to wait and see where it will be closer to the closing. Some mortgage brokers even offer programs to “lock in” a rate and if it goes lower, you get the lower rate.
Back of the napkin quick estimates!
A quick back of the napkin estimate is taking the TNX rate and adding 1.70 to come up with a mortgage rate, according to The Truth About Mortgage.com. But, “mortgage rates are very susceptible to economic activities,” the article continued to warn. “As a rule of thumb, bad economic news brings lower mortgage rates and good economic news brings higher mortgage rates.”
And, of course, personal finance situations and credit issues and scores also have an affect on the final number, based on the lenders standards. Nonetheless, watching the TNX will help you understand where the mortgage rates have been, where they may be going in the near future and where it is presently to help you get the best mortgage rate at any specific time.
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