Borrowers’ Urgency Grows in Rising Rate Environment
Even with the Fed’s intention to keep interest rates low, borrowing opportunities are getting squeezed by higher bond yields.
The State of the Market Now
As we get closer to Spring, the country continues to open up. COVID rates are falling, vaccine rates are rising, and many businesses are coming back online.
Although this opening up has not yet been reflected in a return to everyday normalcy, or in the jobs market, it has been prevalent in other areas, like the stock market and many real estate markets.
That return to growth has become so much the narrative now, that with the tailwinds of an economic rebound amidst easy government fiscal policy, countered by a weakening dollar and rising inflation, investors are shifting into back into bonds again, affecting rising yields.
Mortgage rates go up as yields rise.
Regardless of anything the Chairman of the Fed has stated on record, this shift is pushing interest rates up, and after a long while, we also now in a rising rate environment.
Tips on Following the Market Like a Pro
If you want to more about the direction of interest rates, what should you be looking at?
The ten year treasury? The MBS?
When following bond pricing and mortgage rates, the 10yr US Treasury Bond Yield used to be the benchmark to follow. Even though most mortgages are based on a 30 year loan, the average mortgage is paid off or refinanced within 10 years, making the ten year US Treasury Bond Yield a great indicator on the direction of interest rates.
These days, we have a more particular eye on the MBS (mortgage backed security) market, as this is where mortgages are repackaged and sold in the secondary market. When MBS prices drop, lenders raise interest rates, and when prices rise, lenders drop their rates.
How These Market Shifts Affect You
Will these trends outlined continue?
No one can predict for sure what exactly will happen with rates from here on out, but with the historically low levels that rates have been at for a while now, chances are they will rise from here.
In other words, although we are in a rising rate environment, rates are still low at the moment, but not at the rock bottom lows they have been.
What You Should Do
For anyone with a mortgage, or anyone who may want to get a mortgage, it’s most important to consider your short and long terms goals.
If you are in a mortgage that you have been waiting to refinance, now is the time. With rates on the rise, it doesn't make sense to wait for them to go lower from here.
If you are thinking about getting a mortgage, consider your timeframe and the amount you're looking to spend, with an eye on where rates are now, and where rates could be for if they continue to inch up.
Let’s discuss - I can help you:
- understand all the options available now
- find out exactly which rates apply to your financial profile and property scenario
- do all the calculations with various payments and rates, so you don’t have to, but you have accurate values to reference
Reach out to me to find out more details about your options, and to get all your questions asked.
Best, Jim