There is an inverted Treasury yield curve that is currently happening because of the China trade war, Fed rate cuts and other unique market factors. It’s an abnormal situation, and it’s one that some people worry is a sign of an impending recession. Yet, how it’s affecting mortgage rates is truly fascinating
Interesting Mortgage Implications
What has caught my interest as a mortgage lender, though, is how this inverted yield curve is affecting the mortgage industry in unusually beneficial ways. Typically, borrowers looking to get a mortgage loan with a decision between a traditional fixed-rate loan and an adjustable-rate mortgage (ARM). Though ARMs aren’t as prevalent as they used to be before the last recession, they are still utilized for many home loans.
ARMs generally offer lower interest rates than fixed-rate loans. However, they also bring more risks because the adjustable rate is at the mercy of the market. On the other hand, a fixed-rate loan might have a slightly higher interest rate, but it is set for the life of the loan. There are no surprises or risks that the rate will go up.
ARM vs. Fixed Mortgage Rates
With the inverted yield curve right now, however, ARMs are actually displaying higher average interest rates than traditional 30-year fixed mortgages. This is a rare occurrence and it is good news for new home buyers—at least for the time being. I should note that refinance rates are still currently lower for ARMs.
How can this be explained? Well, ARM rates are kind of all over the place because they can vary so much from lender to lender. Also, they still represent a fairly small percentage of new home loan originations in today’s market (roughly 6% of all new loans). Therefore, you have a small sample size with a lot of variance.
In addition, some lenders will also want to have some ARMs go through to create more variable cash flows to protect against all the fixed-rate loans being originated at lower interest rates (and thus lower rate returns over the life of the loan).
Make the Right Mortgage Decisions
Though you should always be careful when considering an adjustable-rate mortgage for a new home loan, now is definitely not the time to get an ARM. It’s important to talk with your mortgage advisor to weigh all your options and make smart financial decisions. Whether you are buying a home or refinancing, you want to lock in the best rate and get the best terms. Right now, fixed rates are at all-time lows and it’s a good time to take advantage of market conditions while they last.
For help with all your San Diego mortgage needs, count on Transparent Mortgage. Our team is here to help with the guidance you need and the customer care you deserve. Call us today at (619) 701-3906 to get more information and to get started on your new home loan or refinance pre-approval application.