This reminded me of a dinner recently with two friends of mine who are also real estate agents. One of the agents brought along a friend who is a mortgage broker at a different company. The topic turned to rising interest rates. The broker said, "Mortgage rates will stay flat until after the election. (Federal Reserve Chief Alan) Greenspan won't mess around with (George W.) Bush."

Very interesting comment. Especially from someone in the mortgage business. Is he right?? Well, yes and no. As we have seen in the last few weeks, mostly no.

This comment made me think. "Do you know what makes mortgage interest rates rise?"

I want you to take a moment to answer this question yourself before you read below. What do you think makes rates go up? As professionals in this business, this is something we should all know, yet not of us many do. I work with agents who have been in the business for over 20 years who cannot answer this question properly. I have worked with many loan officers who also cannot answer this question.

"What makes actual mortgage interest rates rise?" Is it the Fed? The economy? Inflation? The banks? The President? Fannie Mae or Freddie Mac?

If you are a regular reader of this newsletter, you know that I try to make it as easy as possible to understand. I dont want this to become a boring Economics 101 lecture but I think it is important for you to understand the basics so that you can communicate with your clients when they ask.

First it helps to understand that there are many different types of mortgage interest rates.

There are Prime, T-bills, Treasury Notes, Treasury Bonds, Federal Funds Rate, Federal Discount Rate, Libor, 6-month CD rate, COFI, Fannie Mae Backed Security, and more. Although I am probably missing one or two, each of these can be tied to your loan and each of these can rise and fall at different levels.

Actual mortgage interest-rate movements are based on the simple concept of supply and demand.