Mortgage Rates and the US Treasury Rates- Explained
I have been receiving a lot of questions regarding interest rates lately. And I wanted to help everyone by explaining that mortgage rates and the US Treasury rates --- do not go hand in hand. The reduction in the rates is not being passed through directly to customers.
Mortgages do not track the Treasury.
Mortgage rates reflect the average yield in the mortgage market. The way mortgage rates works is mortgages are based on the 10 year Treasury swap rate plus about 200 basis points.
So for example, I had a client who back in August had a mortgage rate of 3% and the 10 year Treasury was 1.47 percent. Currently, with the last reduction the 10 year Treasury is at .85%-that is a 42% decrease but mortgage rates have even creeped up.
Most mortgages are packaged and sold out in Bonds, FannieMae/FreddieMack/ HUD. Banks underwrite a mortgage they package them and sell them off but, currently the market is telling them we will not buy anything under 3%....
Spreads have started to widen and the demand is there between refinance and home purchases --so there is no need to reduce the mortgage rates currently.
Also, be careful also about refinancing. It may look appealing but please read the fine lines. Check your points, if you are buying down the rate, line items and what you have to put down initially.
If you are going to refinance you want to see a lower monthly amount but if you are going to move again in 5 years this may not make sense. You are starting your loan all over and more money will go more towards interest rather than principal. You new monthly amount may be lower but the amount you are paying is going more towards interest.