Mortgage rates continue to jerk violently up and down from one week - and even from one day - to another. A big reason for the mortgage rate volatility has been mortgage credit spreads, the difference in yields on mortgage-backed securities versus those of risk-free Treasury yields. These spreads have been in constant flux, one week ago hitting the highest levels since 1986, before narrowing suddenly this week as credit markets showed further improvement. The economic outlook as well as the conditions in credit markets will continue to influence the direction and magnitude of mortgage rate changes in the weeks to come. With weak economic fundamentals and mounting mortgage delinquencies, volatility in rates seems sure to continue.
The volatility in mortgage rates seen over the last month can have a pronounced impact on a borrower's monthly payments, depending upon when they locked the rate. On Oct. 8, the average mortgage rate was 6.2 percent, meaning a $200,000 loan would have carried a monthly payment of $1,224.94. When the average rate hit 6.77 percent last week, the monthly payment on a $200,000 loan would have been $1,299.86.
