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Why Low 10-Year Treasury Yield Rates Equal a Cheaper Mortgage

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Now is an exciting time for you to take out a mortgage and buy a home due to the 10 year treasury yield. This yield rate is a broad economic indicator that has numerous implications for people with mortgages.

 

What is a 10 year treasury bond?

This is a financial instrument that pays interest out every six months and the principal is paid when the bond matures. These are bonds sold by the U.S. government and backed by the treasury. They tend to increase in demand and sell quickly and at higher rates when investors have low confidence in the economy, because they are viewed as safe long term investments. The 10 year yield rate drops during these periods of high demand.

Quick Clarification: The 10 Year Bond is not a direct component of any mortgage product or mortgage rate, however the implications reflect a positive time in the mortgage industry

Have more questions about the mortgage process? Our Loan Officers answer the Top 5 Questions here

Why is the rate on this investment so important?

The 10 year treasury bond yield has generally been used as an indicator for a number of economic factors. During times of high confidence, investors usually look elsewhere for higher risk, higher return forms of investment, which causes the bond price to go down and its yield to go up. This is why even slight movements in the yield on this bond can show promise for returns on multiple kinds of investments.

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The effect of the 10 year treasury yield on mortgages

Because mortgages are backed by various bonds and securities, the low cost of this 10 year bond is translated into savings on a mortgage. Banks tend to charge more interest on mortgages as the yield on this 10 year bond increases, meaning that record low points also translate into much lower interest rates on mortgages due to lowered interest. This gives buyers an incentive to invest in property to help boost the economy during times of low confidence.business-management-and-finance 2

While it is not important to understand all of the financial terminology associated with this indicator and the specifics of investing, anyone who is preparing to take out a mortgage can benefit from the savings associated with lower yields. This means that a time like the present is great for taking out a mortgage or refinancing, as you will end up owing much less money over the course of the loan due to lower interest on your payments.

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