The economy is reopening. Americans are starting to travel again, eat out, and go to the movies and play ball games. But if you expected the vigorous recovery to translate into a rapid rise in prices, mortgage rates, think again.
The 10-year Treasury bond rate – a closely watched measure and a key benchmark for mortgage rates – fell to 1.53% on Tuesday. Before the recent pullback, the yield on government bonds reached 1.69% in May.
The drop in Treasury yields came after a new report showed the US trade deficit had reached record levels. For mortgage borrowers, lower Treasury yields should translate into lower mortgage rates. Typically, the 10-year Treasury tracks 150 to 200 basis points above the 30-year mortgage rate.
“The response of mortgage rates to movements in underlying Treasury yields tends to be fairly immediate,” said Greg McBride, chief financial analyst at Bankrate. “A drop in treasury yields one day means lenders often change prices that day and borrowers get better rates within hours. With Treasury yields falling to start the week, now is the time for borrowers to lock in their rates. “
The reversal of Treasury yields is just the latest ball of the curve launched by the economy. Mortgage experts expect mortgage rates to continue to climb this year – and any decline in Treasury yields could prove fleeting, said Joel Naroff, director of Naroff Economics.
“There is really little reason for the fall in Treasuries,” Naroff said. “Inflation is not going to go away, growth is strong and the economy is just starting to fully reopen. I expect Treasury rates to rebound, so any drop in mortgage rates will likely be temporary. “
What you can do to ensure smooth and profitable refinancing
Mortgage rates have risen from historic lows set in January, but there is still time to refinance your mortgage. Here are three pro tips:
- Compare the prices: The best deals go to borrowers who compare mortgage offers. By getting at least three quotes, you can save thousands of dollars over the life of the loan.
- Consider a rate foreclosure: Lenders typically extend the rate freeze for 30 to 60 days, which means you won’t have to pay more if rates go up before your loan closes. These are not normal times, however, and many refinances don’t close within 30 to 60 days, so make sure your lender is prepared to extend your rate freeze if your deal is delayed.
- Keep your credit score tight: Now is not the time to miss a payment, take on new debt, or do anything to lower your credit score. Lenders are particularly strict on the credit history of borrowers.