If You Haven’t Refinanced Your Mortgage Yet - Do It Now!
Tim Allen, CMB?
Certified Mortgage Banker? | Producing Branch Manager - Empowering Mortgage Professionals to Succeed | Residential, Commercial, & Reverse Mortgage Strategist | NMLS ID: 334720 | [email protected] | 239-571-5440
Mortgage payments are a significant portion of household budgets. This means that if you can lock in your mortgage at fixed 15- or 30-year terms when rates are low you can save thousands of dollars in interest payments.
Mortgage Rates are Predictable
There is a strong correlation between mortgage interest rates and Treasury yields, according to a plot of 30-year conventional mortgages and 10-year Treasury yields using US Treasury Department data. Mortgage interest rates are higher than Treasury yields because mortgages are riskier than Treasury bonds. The risk is that some homeowners get into financial difficulty and default on their mortgage obligations. The difference, or spread, between Treasury yields and mortgages interest rates is the risk premium.
Falling Treasury Yields
Falling Treasury yields lead to lower mortgage rates, which means lower monthly mortgage payments. Renters might consider buying homes, and existing homeowners might think of upgrading to bigger homes or refinancing their mortgages at lower rates. A booming real estate market typically increases home values and household net worth. People are likely to spend more because they feel richer and more optimistic about the economy. Rising demand for homes also means increased construction activity, which means economic growth. Mortgage rates might not always fall as rapidly as Treasury yields, especially when sustained economic weakness increases the risk of mortgage defaults.
Rising Treasury Yields
Rising yields lead to higher mortgage interest rates. Yields rise usually when the Federal Reserve raises short-term rates to control inflation and slow down the pace of economic growth. Higher mortgage interest rates mean higher monthly mortgage payments, which slows down the real estate market as home buyers put off buying new homes or upgrading to larger homes. This drop in demand could depress home resale values, which leads to a drop in household net worth. People feel poorer and less optimistic about the economy, which usually means they spend less on non-essential items. The resulting economic slowdown may eventually prompt the Federal Reserve to lower interest rates to spur economic growth.
Tim Allen, CMB? Vice President, Mortgage Loan Officer IBERIABANK | First Horizon [email protected] Direct: 239-571-5440 NMLS #: 334720