Lock Your Rates!

Historically, mortgage rates and the 10-year treasury rate have had a high correlation. I compiled the graph below to trace the correlation between a 30-year fixed rate conforming loan compared to the 10-year treasury rate. The difference is rarely less than 2%. Following the Fed’s historic rate cut in November, the 10-year rate dropped from 4% to 2%. Mortgage rates followed. Do not fool yourselves but these levels could be a once in a life-time event.

I have been involved in the mortgage securitization business for 10 years and I can assure you that the yearly seasonality dictates that mortgage rates are lowest in the first quarter and that is usually because lenders adjust to the low demand in winter. This would become a different story in the second and third quarters when many homeowners prefer to move (weather and school schedule).

The point is that we are seeing a double-whammy where the 10-year rate is extremely low and it is taking place during a low-rate quarter. The odds that mortgage rates will go up outweigh the odds that they will go down. So ladies and gentlemen, if you are planning to refinance or purchase a property: Lock your rates!

Source: US Treasury; Freddie Mac.

Disclaimer: Nothing in this blog is designed as, or should be construed as legal or investment advice.