A basic premise of supply and demand states that price is directly affected by supply and demand, and this rule holds true in the mortgage lending world as well. Essentially, when demand for mortgage loans is high, lenders may not pass along their best rates to applicants. The National Bureau of Economic Research has supported this in a paper that it published recently.

To understand the truth behind this, you must understand what happens to your loan after closing. In most cases, the lender that you apply with and that funds your loan is not the primary investor. Instead, the lender can be viewed as a middleman. After closing, the lender sells the loan to an investor. The investor pays the lender for the full principal amount of the loan and provides a lender credit. Lenders have the ability to slightly adjust the interest rates they offer by passing along some of their lender credit to applicants when business is slow. Think about how a retailer offers products at a discount to encourage sales when business is slow. This is essentially what lenders are doing.

What does this mean for applicants? Lenders cannot handle an unlimited number of loan applications, so they moderate demand through small rate adjustments. If you apply for your next purchase or refinance loan when business is slower, you may receive a slightly lower rate in relation to the index at the time. However, other factors also influence rates. Both the index and the margin that are used to determine mortgage rates can change at any given time for numerous reasons. With this in mind, the best time to apply for your next home mortgage may be when the time is most ideal for you. For example, you may not want to hold off on buying your home with the hope of getting a lower rate in a few weeks. There is no guarantee that this will happen.

Are you ready to learn what interest rate you may qualify for? Now is the ideal time to contact the MortgageDepot team to get prequalified for your next loan.

Connect with one of our loan consultants to learn more.

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