The mortgage interest rate is determined by supply and demand, perceived risk of similar investments, and the general health of the overall economy. Bottom line, when the economy is strong and growing and health is evident, money flows into the stock market and rates go up to compete for investors. When the general economy is weak or uncertain, investors choose the safety of investments like bonds and interest rates go down.
Now that we’ve handled that, let me tell you about the historical relationship between the U.S. Treasury 10-year bond yield and the 30-year fixed rate mortgage. Historically the 30-year fixed sits 1.50% above the 10-year bond yield. Today the 10-year bond is yielding 1.60 percent. So if we apply the logic above, 1.60 percent plus 1.50 percent equals a projected 30-year fixed at 3.10 percent.
However, as you may have noticed, the 30-year rate isn’t quite down to 3.10 percent. I take this to mean that there should be a downward pressure on interest rates and we should expect a continued decline in rates.
When the economic news is good and our growth is unmistakable, our investors will move from the safety of bonds and the yield will go up. Make sure to get in now to take advantage of historically low interest rates.
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