Mortgages

Are Mortgage Rates Going Down?

If you are in the market for a home mortgage, you might be in luck. Mortgage rates appear to be going down – again. Indeed, Freddie Mac reports that the average 30-year fixed rate mortgage is going for 3.25%.

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But will mortgage rates fall even further?

This is a question that many are asking. Not too long ago, it seemed as though mortgage rates hovering around 5% would be the bottom, and that there was no way they could move lower. But mortgage rates have gone lower. And there is a possibility that they could lower still if the housing market stays as it is — and if the bond market remains as it is.

Mortgage Rates and the Bond Market

Mortgage rates are connected to long-term Treasury bonds (10 year notes). When 10-year notes drop in terms of yield, so do mortgage rates. And, of course, when Treasury yields rise, mortgage rates tend to head higher as well. There are a number of other factors that influence your particular mortgage rate, including the market in your area and your credit score, but on a national scale Treasury bonds are a big factor in what mortgage rates are likely to do.

Will 10-Year Treasury Yields Drop?

There is a bit of a debate over whether or not 10-year Treasury yields will drop anytime soon. The issue is that the Fed appears to be gearing up for another round of quantitative easing in the name of economic stimulus, meaning that it is likely to buy up Treasury bonds. The last time the Fed bought up a bunch of Treasury bonds, yields moved higher. This could mean that we could see an increase in mortgage rates if another round of quantitative easing kicks in.

On the other hand, if demand is high enough for Treasury bonds, yields will drop as prices rise (yields and prices move inversely to each other in the world of bonds). This could force mortgage rates a little lower.

Bottom line: There is no way of predicting for sure what Treasury yields — or mortgage rates — will do. The best you can do is look for patterns, and make your best decisions. The good news is that, even if you buy or refinance now and mortgage rates do move lower, you will still have gotten a very good deal.

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