It used to be that the Department of Veteran’s Affairs handled most every aspect of processing and approving a VA home loan request. The VA would also order the appraisal and set VA rates but today, individual lenders compete with one another for a VA home loan and price their mortgage rates individually. This competition between lenders keeps mortgage rates very much alike from one VA lender to another. There will be differences but they will be minor ones. You won’t find one VA lender offering a 30 year fixed rate at 4.00 percent while everyone else is at 5.00 percent for example. At least under the very same circumstances.
But rates do change, don’t they? Not only do lenders compete for your business they must also price their mortgage loans based upon a central index that all VA lenders follow when establishing mortgage rates for their clients. Specifically, the index is the 30YR GNMA prevailing coupon. That’s not really necessary for anyone to know and memorize but that’s the reason VA rates from lender to lender are very close to one another. So how do they change?
The 30YR GNMA is in fact a mortgage bond and just like any other bond, as the price goes up, rates go down. A bond provides an investor with a set return, unlike investing in the stock market when a stock price is based upon the performance of a company. A stock can become worthless for instance if the company goes bankrupt but a bond will always provide a guaranteed return.
That said, when investors are confident the economy is moving in the right direction, they can pull money out of bonds and into stocks for a better return. When the economy is in the doldrums or investors are fearful of the future, money will be pulled out of stocks and back into bonds.