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Mortgage rates are virtually identical on 30-year fixed rat programs as they are for 3-year adjustable rate mortgages.
It's an uncommon event, but it makes sense if we consider the state of the economy.
All things equal, short-term mortgage rates (i.e. ARMs) should be higher than long-term rates such as the 30-year fixed because (1) the inflation risks are higher in the short-term, and (2) the need for banks to earn a greater return is higher in the short-term, too.
But all things are not equal.
We have to consider the risk of time to traders of mortgage mortgage bonds. As in: the more time that passes between now and some point in the future, the more chance there is of something unexpected happening.
Unexpected. That word choice cracks me up because everything in finance and economics is based upon what is expected, not what isn't. It's when the unexpected happens that markets go bonkers.
And this is why rates are flat like Kansas today. Time Risk -- or the acknowledgement that something could go wrong in the future -- is offsetting Inflation Risk and its a complete wash.
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator click to get a free, no-obligation rate quote.
You can also find Dan on Twitter and Google+.
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