Epic Knowledge Drop on Why Mortgage Rates Can Appear to Have Dropped by Near Record Amounts Recently

When rates jump by some of the biggest amounts ever to the highest levels in more than a decade, it sets us up for some equally impressive corrections when the underlying bond market finally finds its footing.  That happened last week in grand fashion following the Fed announcement.  From Tuesday morning to Wednesday afternoon, rates dropped more than on any other single day since we began keeping daily records in 2009.  In many cases, this amounted to a drop of 0.375% in terms of conforming 30yr fixed rates, although the average was “only” 0.25%.  Today’s drop versus yesterday is “only” 0.19%, but that’s still one of the 5 biggest day-over-day drops we’ve recorded.  Once again, certain scenarios at certain lenders are seeing a drop of as much as 0.375%. What’s up with the difference between those instances of 0.375% and our 0.19% average?  First off, one is an average, and not every scenario has improved by that much.  Secondly, and more importantly, this has to do with that potentially confusing point I’ve been making almost every day for the past few weeks about the “buydowns” between rates being much smaller than normal.   Because this is a somewhat complex topic depending on you level of familiarity, let’s take a moment to break it down. Mortgage Rates: Upfront Cost vs Cost Over Time Mortgages have 2 costs, whether you can see both or not.  One of those costs is obvious.  It has to do with the interest rate.  The higher the rate, the higher that cost.  You will pay it over time in the form of monthly payments.
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