Why Do Mortgage Rates Adjust?


Mortgage rates follow the 10-year treasury yield… This can be found as the publicly traded symbol of TNX.

As the treasury yield increases, rates immediately follow.  Currently, the yield is 2.38. Mortgage lenders and banks add a spread of between 1.50% to 2% to this current yield of 2.38 as a premium. Therefore, you will see today’s conventional rates between 3.88% to 4.38%. Other factors will adjust your rate up or down based on credit worthiness. (IE; Credit score, loan to value (your equity in the property), primary residence vs. investment property, loan type and whether you are taking cash out.)

What makes the 10 year treasury yield adjust?

1)      Supply and demand: When the public including hedge funds, traders, and other countries purchase The US 10-year treasury notes, the yield tends to go down. When fewer treasuries are bought, the value must go up to entice more people to purchase them.

2)      The Fed Funds Rate: This is the rate of interest that is dictated by The Federal Reserve (we hear most about this rate when the Fed’s meet). This is the interest that banks charge each other to build reserves and ensure they meet the regulatory requirements of having enough funds in reserve.

3)      Speculation: The knee jerk reaction by investors and banks to the daily news will move mortgage rates as lenders and banks are predicting the direction of both the 10 year treasury yield and their own default rate.

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