Mortgage Rates

The general level of interest rates continues to surprise us. After beginning to move higher during the fall of last year, borrowing costs turned south again in December and have continued to fall. There were a couple of spikes in March and April, but the 10-year Treasury is back below 1.8% today. This suggests that there is still a tremendous reluctance on the part of many investors to put capital at risk. I don’t believe in trying to predict the future, but I am pretty confident that inflation is not dead. Sooner or later, we will be faced with a rising rate environment. Be prepared.

A low interest rate environment makes it difficult to earn a decent return on a bond portfolio, but it can help reduce living expenses if you are still paying an above-market rate on your mortgage or other debt. Historically, mortgage rates have been most closely tied to the yield on the 10-year Treasury bond. Why is that? The average 30-year fixed mortgage only has a life span of about seven years (due to the homeowner moving or refinancing). Since the yield on the 7-year Treasury note is generally similar to the yield on the 10-year Treasury, the current 10-year is most often used as a benchmark when setting 30-year mortgage rates. Why? Because the government issues 10-year bonds more frequently. Confusing? Yes, but I share all this simply to point out that if you see the yield on the 10-year Treasury bond falling, mortgage rates are probably headed down as well (and vice versa).

One can expect that there will always be a positive spread between the 10-year Treasury yield and the best 30-year mortgage rate available. Loans to you and me are more risky than loans to the United States (debatable?) and therefore, should command a higher rate. The spread varies over time, but today the difference is about 2%, or 200 basis points. If you would like to read more about how interest rates affect the housing market, click here.

Last week, 30-year mortgage rates hit another all-time low. According to, the national average for a 30-year fixed rate mortgage is 3.76%, and 3.02% for a 15-year fixed mortgage. Money is cheap (if you have good credit), but low interest rates are not reasons enough to purchase a new home. Many other factors should be considered and discussed before purchasing more house.

If you have a mortgage today and your rate is higher than 4.5%, give us a call. We would be happy to put you in touch with one of the best mortgage lenders in Central Texas.