Mortgage Rates Update

I would like to give you an update as to what is happening with Mortgage Rates and how you could take advantage of the current interest rate climate through 5 strategies to reduce the cost and increase the equity that your mortgage is generating for you.

Yes, equity. A mortgage is not a bill, but a powerful way to build savings.

Mortgage rates are always changing (3 + times per day) but 2026 is turning out to be more volatile than the preceding years. This means the rate of change is more dramatic and it happens in a shorter amount of time.

If you look at the graph below you can see that in January 09th rates plummeted a lot in one single day!

Analysts attribute the dip to the announcement that Fannie Mae and Freddie Mac were instructed to use their excess cash to buy more mortgage bonds.

If there is more demand for these bonds, prices of the bonds increase. If investors have to pay more for each bond, the rate of return they get per bond is less.

This is why when Bonds go UP in price, rates to borrowers come DOWN.

On the Chart below you can see that every time a Bond goes up in Price, this movement is shown by a Green Bar. When the Bond goes down in price, you see this movement as a Red Bar.

If you don't grasp these mechanics at once, don't worry about it. It has taken me years to understand this. It is not intuitive nor easy.

In a nutshell, the more people buy these mortgage bonds, the lower the rate becomes to borrowers. Conversely if less people buy these bonds, traders have to make them more attractive so they can sell them. They do that by increasing the returns to investors and this translates into more expensive mortgage rates.

Where does the Government fit into in all of this?

When times are challenging such as depressions or economic downturns and investors do not buy these mortgage bonds, the Mortgage Industry becomes paralyzed because without money to make new loans they can't lend anymore. This causes rates to increase dramatically.

When that happens, the Federal Reserve intervenes as the buyer of last resort. They re-activate the Mortgage Industry by starting to buy mortgage bonds en masse. This happened in 2008, 2012 and recently during the Pandemic Years.

Currently, the Federal Reserve is not buying any bonds and they are letting the ones that they bought in the past mature.

The takeaway from all this is that if you watch the mortgage bond market and plan accordingly, you could take advantage of the current fluctuations to pay less, save more and have an easier time making monthly payments.

There are 5 ways you could achieve this.

Because of space limitations, I am going to enumerate the 5 ways and later on future newsletters I will explain in detail how you can use each one of them:

1) Refinancing into a Lower Rate:

This is what everyone is after and what the news stress however, refinancing into a lower rate is only a small portion of what you could do. 

There is not ONE Rate but a RANGE of rates. Depending on what you CHOSE, you could reduce your monthly payment and reduce the volume of interest.

If you have an Equity Line of Credit attached to your home or a second loan that is eating you alive, calculating the "lower rate" has an extra step.

You need to figure out the weighted average rate you are really paying to see whether or not a refinancing makes sense for you.

2) Decreasing your Monthly Payment:

Lowering the rate is not the only way to reduce your monthly payment. 

By refinancing, you could re-structure your monthly payment by removing the impounds or escrows. That is, taking care of taxes and insurance yourself instead of having a third party (the Servicer of your loan) do it for you.

In this manner you could markedly improve your cash flow.

3) Adjusting the Loan Amount:

A metric lenders use is what percentage of the value of the property the loan represents.

For example, if your property is worth $1 million and the mortgage balance is $600,000, this means the loan is 60% of the value of the home.

Lenders call this the Loan to Value Ratio.

Lenders give you a break at each 5% interval, so the more value you have relative to the loan, the lesser is the rate you'll pay.

This is how you could use this concept.

In the $1M property value example, say the balance of your mortgage right now is $705,000. If you were to decrease your balance to $700,000 as part of the refinancing, you would come down to a ratio of 70%, this alone would give you a lower rate.

4) Duration or Term of the Mortgage:

Something that is under your control is the total duration of the mortgage.

Even though most mortgages are 30 years in duration there are a few things you could do such as:

Refinance into a 15 years mortgage, this would dramatically cut down the rate and volume of interest.

Preserve your existing term but make extra payments, this would dramatically cut down the volume of interest.

5) Changing Loan Programs:

The cheapest rate comes to those who use Tax Returns to qualify. It could be that your mortgage was based on Bank Statements or other documents but not Tax Returns.

Sometimes re-structuring your return and having your CPA reclassify some of your expenses makes all the difference! 

Additionally, if you cannot use tax returns and your loan is "Non-QM", this means not based on Tax Returns, you could refinance into Interest Only or change the amortization to 40 years.

These are just some examples of different loan programs that are available which could reduce your monthly payment even if you did not use any of the other ways! 

Summary:

As you can see, there is a lot more you could do than just wait on the sidelines for the rate to come down.

I described these options really fast but each one of them can be tailored to your situation.

You could have a case where each of these is adjusted to fit your particular case.

Refinancing should take into consideration all the above so your mortgage is optimized in the best possible way.

There is a lot more to consider besides a lower rate, the only way to really give you an answer is looking at your specific situation. That is why I will offer 4 1-hour slots at no charge and no obligation via zoom, first come first served, to anyone who is interested in seeing whether or not these 5 strategies could be used in their case. 

Preparation is key in this environment. From February 04th to February 27th, rates on a 30-year mortgage reached as low as 5.25%—this has not been the case in years! As of last Friday, we are back into the lower 6%s.

More rate swings are coming in 2026! It will be a rocky year but with plenty of opportunity to the ones that are ready to take it.