How Are Mortgage Rates Determined?While there are a variety of different factors that affect mortgage rates, the movement of the 10-year Treasury note yield is said to be the best indicator of whether mortgage rates will rise or fall. Mortgages are typically packaged as 30-year products; however, most mortgages are paid off or refinanced within 10 years. The 10-year Treasury note yield is the rate of return that you receive when you invest in this 10-year note. Essentially, you're loaning money to the U.S. government and they're paying you to do so. The yield is important because as mentioned above, it is the benchmark that guides other interest rates, with the exception of adjustable-rate mortgage which follows the federal funds rate. However, even the Federal Reserve watches the 10-year treasury note yield before making its decision to change the federal funds rate. Due to the fact that the 10-year Treasury note is sold at an auction, it indicates the confidence that investors have in economic growth.
The Cause of Rates Rising or FallingMortgage rates fluctuate over time as a result of the interaction of the supply and demand for money in the economy. When the economy is growing, the demand for money increases and therefore, interest rates move upward. When economic growth slows or stops, interest rates move back down. One key factor is inflation. Inflation increases prices and deteriorates spending power in the economy, which in turn slows growth. For future homeowners, this means increased interest rates, making home-buying more expensive. Economic activity is measured across the nation and reported to the Federal Reserve Board. They then take that information to determine whether they want to try to increase interest rates to control growth or decrease rates to spark growth and encourage borrowing. While the federal reserve doesn't directly set the interest rates, they can indirectly influence them by increasing or decreasing the money supply. In addition to regular monitoring by the feds, the financial markets establish benchmarks to understand where interest rates may be headed.
What’s Happening On the Mortgage Front Now?Mortgage rates have plummeted since the beginning of the year to the lowest average in fifty years. This is all as a result of market movements in response to the coronavirus. The Federal Reserve is adjusting short-term interest rates, but mortgage rates are fluctuating based on long-term bond rates. The current lows have already caused a boom in refinancing activity, and the demand among home-buyers remains high, even amidst the short supply of homes for sale.
What does this mean for you? It means that if you have been considering buying or selling a home, the market is at a really interesting point.
purchasing a home at the Lake of the Ozarks or refinancing your current loan, we would be glad to talk to you about your options. Our office is based out of Osage Beach, MO, but we can provide you with assistance no matter what state you live in. Check out our website (www.YourLakeLoan.com) to learn more about our business as well as submit your application.
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Senior Loan Officer
NMLS #: 493712
4655 B Osage Beach Parkway
Osage Beach, MO 65065
**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.