What is the Rate?

We asked our favorite loan officer to lend some insight into "What is the rate?" Here's what he had to say:

That’s the first thing most buyers want to know when looking for a mortgage. The answer is not always so simple and will depend on the time of day and the events of the market on any given day. That's why going online for rate information can be confusing. The best way to find out the rate you qualify for is to get up-to-date information from your mortgage professional. He or she will walk you through how the financial markets are performing, and the key factors that impact rates.*

Let’s examine what drives rates and those indicators today vs. a year ago, and what is impacting the current market and trends:

• Mortgage rates are and have been closely tied to 10-year treasury yields, i.e., the bond market. If you go to any site and look up “10-year treasury yields” you will see that (as of this writing) they are 2.08%. Mortgage rates on a 30-year mortgage typically run at 1.75 to 2.25% above the 10-year treasury yields. Today this means a typical 30-year rate quote might be 3.83% or a few ticks lower. Your lender can explain this margin and what it means for your specific scenario.
• Recently, we have had both historic lows (2014-2017) and some spikes (2018). Let’s look at a one-year history. On July 1 of 2018 the 10-year treasury yield was 2.96%. Later in the year, the yield hit a significant high of 3.25%. Using the formula above do you know what that meant for 30-year rates last year? If you answered 4.6 to a little over 5% for 30-year mortgages you are correct. So – is today a good time to buy? Based on the statistics and the comparison to last year, the answer would be yes; some folks are seeing their 30-year rate quotes as low as 3.875% today.
• So how do you forecast and how do you define the drop in rates over the past year when all the experts indicated a bottom had been reached in 2017? Keep an eye on headlines – things like trade wars, corporate profits, jobs reports, and foreign affairs along with foreign markets. No one can predict with certainty where we are headed but stay in tune to the news, watch the 10-year treasury yields and stay in close contact with your loan originator. He or she will add insight and depth when answering your questions.
• When you see competing quotes it is important to know: rates and APR’s are two different things – when you talk with your lender please ask for today’s rate AND lender's costs to better understand the differences in quotes.

Please note this discussion in no way represents a rate quote but rather is designed to give you tools to understand what drives rates and how to spot trends. *Your specific rate also depends on a number of factors like down payment, credit score, etc.

This article was prepared by Mike Hendrickson, Sr. Mortgage Consultant at U.S. Bank.