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Bi-weekly Interest Rate Update
Fed watch ~ Inverted Yield Curve
There has been a lot of talk over the past couple weeks about the
U.S. Treasury yield curve and the fact that the curve has become
inverted. What does this mean and how does this affect home mortgage
rates? First, an inverted yield curve is caused by the yield on
short term interest rates being higher than the yield on long-term
interest rates as measured by the
U.S. Treasury bill, note and bond markets. I created a yield curve
chart with today’s yields on the 3 month bill, 6 month bill
and 2 year note, 3 year note, 5 year note, 10 year note and 30 year
bond to illustrate the current yield curve. As you can see the yield
on the 6 month bill and 2 year note are higher than the yield on
the 3 year and 5 year notes.
An inverted yield curve increases the borrowing costs on short
term financing, such as adjustable rate mortgages. So we can plan
to see interest rates on adjustable rate mortgages increase if this
inverted yield curve stays this way for any period of time. Initially
lenders may not raise interest rates as there is competition and
lenders want to maintain their sales volume. On the positive side,
interest rates on the 30 year fixed mortgage are still low in comparison
with adjustable rate mortgages. Generally speaking the 5 year Arm
and the 30 year fixed mortgage seem to have the most attractive
rates when compared to other mortgages. The 30 year fixed and 10
year Arm are very close in rate (as you can see in the chart below),
which wouldn’t seem to be the case when you look at the yield
curve chart (above). So make sure to check interest rates on the
30 year fixed if you are looking to purchase or refinance.
You will see I’ve added the current Treasury yields as well
as the current rates for the 5/1 Arm, 10/1 Arm and 30 year fixed
mortgages.
*Assumes purchase transaction with an $180,000 loan amount.
**Assumes purchase transaction with an $599,000 loan amount.
As always, I’m available to review and answer questions on
any good faith estimate provided by another loan officer or mortgage
broker.
PDF download
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I’m available to work with your financial
advisor (or refer you to a financial advisor) or accountant to see
which strategy is most appropriate for your situation. Feel free
to contact me via phone (760-310-6988) or email
to discuss your individual situation.
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