JMAC’s brokers know that things are rarely stagnant in the mortgage industry. There is news about other companies and investors, and news from the government that impacts our brokers and the way JMAC does business. But there is also information that impacts interest rates, and although rates have been good, and stable, for quite some time, we feel it is important for our brokers to remind borrowers that mortgage rates do indeed change.
Plenty of economists believe that the Fed is going to start hiking short-term rates soon – perhaps in December. Of course, we’ve heard that for quite some time. But does that necessarily mean that mortgage rates are going up? For example, if one looks at the historical record, at least over the past 3 tightening cycles, the Fed Funds rate increased, but the long term rate moved up much less, or not at all.
If you look at the spread between long term and short term rates, represented by “the yield curve,” it “flattened” dramatically and ended up inverting. This means that long term rates were actually lower than short-term rates! Borrowers often ask our brokers for an explanation of rates, and why short term rates are less than long term rates. The yield (rate) on the 10-year Treasury note is used relatively often to approximate mortgage rates. And what happens with rates that the Fed sets – like overnight Fed Funds or the Discount Rate, may or may not influence 30-year mortgage rates.
What are the takeaways from this? 1) Don't necessarily fear a tightening in December - it might not affect mortgage rates at all, and 2) When the Fed starts tightening, that is the time to get people out of ARMS and into a 30 year fixed rate mortgage. LIBOR will increase with the Fed funds rate, resetting ARM rates, but if the 30 year fixed doesn't move (or barely moves), then that switch is a great trade for JMAC’s broker’s clients.