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, such as low interest rates. This makes buying a home more affordable in the long run. Let’s take a look at what a 10-year treasury bond is and how taking advantage of 10-year treasury and mortgage rates benefit you in your home purchase journey.


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 home loan, 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 those top mortgage questions here.

Have more questions about the mortgage process? Our Loan Officers answer the top mortgage 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, including the housing market. 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.


The Effect of the 10-Year Treasury Yield on Mortgages

So, what do 10-year treasury and mortgage rates have in common? 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.

How are Current Interest Rates Impacted?

The 10-year treasury and mortgage rates trend is prevalent now. At the end of December 2020, the real estate market hit very low interest rates for a variety of home purchasing options. This means the total price you will pay for your home over the lifetime of your loan has decreased significantly. Nevertheless, just as the treasury bond price can change, so can interest rates. If you are looking to purchase a home, now is the time to do it when the 10-year treasury and mortgage rates are low.

Why the 10-Year Treasury and Mortgage Rates Dropped

Low yields on treasurys equals low mortgage interest rates. And low rates mean homebuyers can afford to purchase a new home, a bigger home or even a second home. This stimulates the real estate market and boosts the economy. Now, with the effects of the COVID-19 pandemic, the economy needs such a boost to stay strong and competitive during these uncertain times.
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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