Wednesday, June 10, 2020 / by Vyral Marketing
How Mortgage Rates Are Calculated
Here’s why current mortgages rates hover around 3.5%, not 0.5% or 2.5%.
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Oftentimes, people will wonder why mortgage rates don’t follow suit when the fed funds rate drops significantly—as was the case at the onset of the COVID-19 pandemic and our current recession. The truth is, in today’s market, mortgage rates are not determined by the fed funds rate.
Though not calculated on the fed funds rate, mortgage rates do align closely with the 10-year Treasury yield. If you look at the history of the 10-year Treasury, you’ll notice that that yield tends to be about 2% lower than mortgage rates.
Back in 2007, when we saw the market crashing, mortgage rates were at 6.5% to 7%, and the Treasury yield was at 4.5% to 5%. It took a couple of years for the Fed to step in and start buying Treasury bonds, which caused the rates to go down.
Though not calculated on the fed funds rate, mortgage rates do align closely with the 10-year Treasury yield. If you look at the history of the 10-year Treasury, you’ll notice that that yield tends to be about 2% lower than mortgage rates.
Back in 2007, when we saw the market crashing, mortgage rates were at 6.5% to 7%, and the Treasury yield was at 4.5% to 5%. It took a couple of years for the Fed to step in and start buying Treasury bonds, which caused the rates to go down.
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The 10-year Treasury yield is nearly at 0.5%—a number we haven’t seen in recent history.
”Amid our current recession, the Fed has already been purchasing these 10-year Treasury bonds, and that has driven the Treasury yield to nearly 0.5%—a number we haven’t seen in recent history. Well, following our earlier principle that mortgage rates are usually 2% higher than the Treasury yield, we’d expect mortgage rates to be around 2.5% right now, but they’re not. How come?
Right now, rates are closer to 3.5%, and part of that is because a good portion of the people/companies that purchase mortgages are not doing so in light of stricter criteria. Could mortgage rates still dip down to 2.5%? It’s possible, but you’ll want to talk to Nathan Jensen at Waterstone Mortgage to get the latest rates and updates from the lending world. As it stands now, mortgage rates seem to be holding close to the 3.5% mark, which is still close to the lowest mark we’ve seen in history.
Again, if you keep an eye on that 10-year Treasury yield, you’ll be able to get a good idea of where mortgages rates are.
If you have any questions on rates, buying or selling a home, or the real estate market in general, don’t hesitate to reach out via phone or email. I look forward to hearing from you!
Right now, rates are closer to 3.5%, and part of that is because a good portion of the people/companies that purchase mortgages are not doing so in light of stricter criteria. Could mortgage rates still dip down to 2.5%? It’s possible, but you’ll want to talk to Nathan Jensen at Waterstone Mortgage to get the latest rates and updates from the lending world. As it stands now, mortgage rates seem to be holding close to the 3.5% mark, which is still close to the lowest mark we’ve seen in history.
Again, if you keep an eye on that 10-year Treasury yield, you’ll be able to get a good idea of where mortgages rates are.
If you have any questions on rates, buying or selling a home, or the real estate market in general, don’t hesitate to reach out via phone or email. I look forward to hearing from you!
