Mortgage Rate – Real Estate Guide

IN THIS GUIDE

What is a mortgage?

A mortgage is a binding contract between a lender and a borrower that allows the lender to seize a property if the borrower fails to repay the loan.

What is a mortgage rate?

The interest rate charged on a mortgage. A mortgage rate can either be a fixed rate or a variable rate.

What is the rate based on?

  • Credit score
  • Income
  • Financial health

Fixed Rate

  • Interest rate doesn’t change
  • Mortgage payments don’t change

Pros

  • If interest rates rise, the loans rate doesn’t
  • If interest rates rise, mortgage payments don’t

Cons

  • If interest rates decrease, the loan’s rate doesn’t
  • If interest rate decrease, mortgage payments don’t

Variable Rate

  • Interest rate changes loan
  • Mortgage payments change
  • Fluctuate with a benchmark rate

Pros

  • If interest rates fall, the loan’s rate decreases
  • If interest rate fall, mortgage payments decrease

Cons

  • If interest rates rise, the loan’s rate rises
  • If interest rate rise, mortgage payments increase

Mortgage Rate Indicators:

Prime Rates

This is the minimum rate banks offer for credit. This is the rate at which banks will lend to each other. Banks are very selective about which borrowers will have access to prime rates. Banks offer access to prime rates only to borrowers with a high-quality credit score, credit report, income and financial health.

10-Year Treasury Bond Yields

This yield follows market trends. If this yield increases, typically mortgage rates increase. If this yield decreases, typically mortgage rates decrease.

Why are mortgage rates so correlated with 10-Year Treasury Bond Yields?

The majority of mortgages are either paid in full or refinanced by year 10, despite the loan’s maturity being 20 years away. When 10-year treasury bond yields begin to decrease, borrowers will attempt to refinance their property to secure a better rate and decrease their mortgage payment.
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