Demystifying Mortgage Rates

The 30-year fixed mortgage, as tracked by Freddie Mac, hit its lowest point ever in 2012. Since then, it has risen fairly steadily. Recently, we’ve seen rates move up to around 4.5%.  While still low, by historical standards, rates are definitely trending upwards.   When purchasing a home, mortgage rates are a key factor in determining the price of a home you can afford.  So what is it that affects interest rates, and how do you know when it’s a good time to buy?

Mortgage rates are moved by the yield on the 10-year Treasury Bond, rather than on short-term rate hikes by the Fed. That’s why mortgage rates fell throughout 2017, even as the central bank raised the federal funds rate three times. The movement of the 10-year Treasury bond yield is said to be the best indicator in determining whether mortgage rates will rise or fall. Though most mortgages are packaged as 30-year products, the average mortgage is paid off or refinanced within 10 years, so the 10-year bond is a great bellwether to gauge the direction of interest rates. Treasuries are also backed by the “full faith and credit” of the United States, making them the benchmark for other bonds as well.

Mortgage rates are very susceptible to economic activity. For this reason, jobs reports, Consumer Price Index, GDP, Home Sales, Consumer Confidence and other data on the economic calendar can move mortgage rates significantly. As a rule of thumb, good economic news forces rates higher.  If the stock market is rising, mortgage rates probably will be too, seeing that both climb on positive economic news.  Our growing economy – while good news – should also be a signal that you should get off the fence if you’re considering buying – and secure a low interest rate now. 

Source: Bankrate. The information above is presented without warranty.