A working knowledge of interest rates and how they are determined is important for your overall understanding of what you do as a notary. Here we will supplement your knowledge of the current market conditions with a discussion of interest. In order to stay up to date and on the cutting edge, we will provide you with timely information on the market, interest rates and future trends so that you can converse with anyone about what is going on in the market.
As notaries, we are all asked multiple times a week what we think is going to happen in the economy. We want you to be up to date and informed.
So let's get started on some interest rate information that will help you be a well rounded notary.
Interest Rates in General
The number one question you will get as a mobile notary or loan signing agent (other than questions about the document signing) is about the current interest rate and where they are headed.
You need to know three rates:
1) Federal Reserve Rate
2) 10 year Bond Rate
3) Average Mortgage Rate.
Let's discuss these economic specifics in order and then talk about how they interact.
The Federal Reserve interest rate is the rate the Fed charges banks and other financial institution for borrowing money. This is important as it help determine the rate the bank will then charge its customers for borrowing money. Theoretically, the lower the Fed rate the lower the rate charged to customers by banks.
While this is somewhat true, banks use a complicated formula to determine what rates they will charge to their customers. Many banks use the LIBOR rate (London Interbank Offer Rate) which is itself a complicated formula (and the subject of much recent debate). Or they may use some other formula that is loosely tied to the Fed Rate.
Current Fed Rate
The current Fed Rate is pegged at:
0% to 0.25%
This is historically low and unprecedented rate. In real terms, it is actually a negative number. This means that the Fed is actually paying the banks to borrow money.
(The difference between the actual rate and real term rates is a bit complicated for this discussion. Just know that the banks can basically borrow money for free or less.)
10 Year Bond Rate
The 10 year Bond rate is the interest that the government receives when it sells its 10 year maturity bond at auctions.
In order to raise money to finance the national debt, the Treasury Department (different from the Fed) will sell bonds at an auction. The rate of interest on these bonds will depend on several factors too numerous to identify here, but general market conditions and the governments ability to repay the debt are major factors.
The Treasury sells many different types of bonds. For example 2 year bond, 10 year bond and 30 year bond. Most mortgage rates are usually pegged to the 10 year bond. This is sometimes referred to as the "bell weather bond."
Once these bonds are purchased at auction from the government, they are traded on the open market where again the real rate will fluctuate depending on the price of the bond purchase. Therefore, the 10 year bond rate will fluctuate throughout the trading day.
The current rate of the the 10 year bond is:
Average Mortgage Rate
The average mortgage rate is simply that, the average of mortgage rates nationwide. This rate is loosely based on the factors described above. You need to know 2 things:
1. What is the average rate; and
2. Is it trending Up or Down or is it flat.
The current rate is 5.34% up from 4.89% one month ago.
As you can see the rate is trending Up from the rate one month ago.
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