What Are Mortgage Rates Really Based On?

There is a big misconception in the financial industries that mortgage rates are based on the 10-year Treasury Bill. This is not accurate; the only correct answer is Mortgage Bonds, or Mortgage Backed Securities (MBS)....

When researching interest rates, many consumers and financial professionals search online to see how the 10-year Treasury Bill is doing. In reality, MBS cause mortgage rates to fluctuate.

In fact, it is not unusual to see the 10-year Treasury and MBS move in completely different directions. Without an accurate knowledge of how mortgage rates truly work, consumers and financial professionals could be misled by tracking the wrong indices.

Using the 10-year Treasury as an indicator of rates would be like using Microsoft stock to determine how the S&P 500 performed on any given day. Sure the two often move in the same direction. But there are many times when Microsoft’s individual stock may be up, while the S&P 500 is down.

HOW YOU CAN USE THIS:
Avoid working with lending professionals who keep their eyes on the wrong indicators. When tracking interest rates, be sure to use MBS as your indicator. This will give you an accurate, real-time idea of how interest rates are moving in the short and long-term.

We use Japanese Candlestick resources to chart the performance of MBS prices over time. This allows us to have a better understanding of bond trends and how interest rates will be affected. This charting has proved to be very accurate in educating clients on the short-term direction of rates.

Feel free to contact us if you have any questions as it relates to mortgage interest rates...we’re here to help!