Why do mortgage rates seem kind of high?

I read this explanation in a newsletter from one of our partners and I thought it might be useful to you in real estate or other business endeavors involving interest payments.

"One perspective is in order to fund the rescue and the new government guarantees, our Treasury must sell more new Treasury securities to raise money. And the Treasury has to offer higher interest rates to sell them. On top of that, mortgage related bonds always trade at a slightly higher yield due to the prepayment and delinquency risk. Lastly, the cost of financing mortgages has increased for Freddie and Fannie due to the plan for the FDIC to back the newly issued, unsecured debt of some banks. Obviously by guaranteeing bank debt, the government is making that debt more attractive for investors, and consequently creating more competition for Fannie and Freddie when they look to sell their own securities. To compete for buyers, the mortgage giants will have to raise their own yields - and to pay for that they'll have to charge borrowers higher interest."

Yes, the rates for 30 year fixed rate mortgages are inching up. But keep this in mind… they are coming up from historical lows. In fact today’s rates are some of the lowest ever.  The chart below shows the rate of a 30 year fixed mortgage since 1971. Note where we are today compared to 1979-1990 in particular.
                   

                    Source:  freddiemac.com/pmms/pmms30.htm                     

Thanks for reading! I value your thoughts and opinions, so please feel free to leave a comment.  Or, contact me if you have any questions or need help.  If I do not have an answer, I can likely find someone on our team who does.

Comments

[Jamie]

Excellent blog! Great Info considering the current market...