Follow business news long enough and you'll hear that mortgage rates track the yield of the 10-Year Treasury Note. And, you'll be hearing wrong.
Mortgage rates do not track the 10-Year Treasury -- at least, not perfectly.
Across years, mortgage rates for a 30-year fixed-rate mortgage often trend with the yield on a 10-Year Treasury Note.
However, when you're buying a home, you're not shopping for mortgage rates for years -- you're shopping for rates "today".
This is why you you can't use the 10-Year Treasury as a proxy for today's mortgage rates. On a day-to-day basis, mortgage rates and treasury yields are dissociated.
There's only one place to get an accurate mortgage rates -- a live mortgage lender.Click to see today's rates (Oct 1st, 2016)
For every mortgage type, there's a different source for its rates. This can make shopping for a home loan difficult.
When you're getting a mortgage rate quote on a home equity line of credit (HELOC), for example, the mortgage rate you get from the bank is based on Prime Rate, and typically quoted as "Prime + 1%".
This means "Prime Rate plus 1 percentage point"
Prime Rate is calculated as the Fed Funds Rate plus 300 basis points (3.0%) so, whenever the Fed Funds Rate rises, therefore, so does Prime Rate (and the rate for your HELOC).
The Fed Funds Rate is controlled by the Federal Reserve. Changes are voted upon eight times annually.
All other mortgage rates, though, are outside of the Federal Reserve's purview.
When you hear about conventional mortgage rates -- such as the ones backed by Fannie Mae, or highlighted in Freddie Mac's weekly mortgage rate report -- those rates are being set by the price of Fannie Mae and Freddie Mac-backed mortgage-backed securities (MBS), respectively.
Mortgage-backed securities are bonds sold on Wall Street, which are backed by mortgage payments made by homeowners. Most mortgage-backed securities are considered "safe" investments because they're backed by the U.S. government.Click to see today's rates (Oct 1st, 2016)
FHA mortgage rates, VA mortgage rates, and USDA mortgage rates are also born from mortgage-backed securities -- but from a different type of bonds than the ones that make conventional loans.
FHA, VA, and USDA mortgage rates are based on the price of bonds from the Government National Mortgage Association (GNMA), which is more commonly known as "Ginnie Mae".
This is why VA mortgage rates are different from -- and lower than! -- conventional mortgage rates. VA rates are backed by different mortgage-backed securities.
Note that no type of mortgage rates, though, are based on the price of a 10-Year Treasury Note. None.
So, if you're watching the 10-Year Treasury Note's changes and think you're getting a look at where mortgage rates are headed, think again. The only way to track the future of U.S. mortgage rates is to watch the U.S. MBS market.Click to see today's rates (Oct 1st, 2016)
In defense of the 10-Year Treasury Note, it does have a terrific, long-term correlation to mortgage-backed securities.
Over the long stretches of time, when the 10-Year Treasury rises, so do mortgage rates. Perhaps that's why "experts" often link the two.
However, when you're planning to buy a home or refinance one, you don't shop for your mortgage over a 5-year correlation window -- you shop over the course of a one day, or a week.
Furthermore, during that week, there's often little correlation between the 10-Year Treasury and 30-year mortgage rates.
On some days, the two securities move in the same direction but by different amounts; and, on other days they move in opposite directions completely.
The 10-Year Treasury is a false indicator for "live mortgage rates". To get a live mortgage quote, ask for one from a lender.
Mortgage rates change all day, every day. And, the only play to get access to live, accurate rate quotes is via a mortgage lender.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Oct 1st, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Barry L. Systems Analyst
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Mohammed Y. Retired
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Elizabeth C. Librarian
Thanks to The Mortgage Reports, I have a new, very low rate for my home. I owe you so much.
2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)