Why are mortgage rates tied so closely to economic and financial market events?
When a person borrows money from a lender, the person must sign a promissory note promising to repay the home loan and a mortgage note (or deed of trust) to serve as collateral for the loan. The bearer of these notes has a legal claim to the property until the mortgage loan is either paid in full or refinanced. When a lender has loaned out all of its available funds, the lender will often raise money by selling groups of these notes (mortgage loans) to investors. The selling of mortgage loans to investors is referred to as the `secondary mortgage market.’ In order to attract investors, this secondary mortgage market must be competitive with similar investment markets. Since a mortgage loan is a long term debt, the Treasury bond market (debt issued by the federal government) is used as a benchmark for determining appropriate value.
