A Personal Finance Guide

Why the Government’s Growing Debt Load Could Impact Your Mortgage Payment

The increase with interest rates can be tied into a few critical factors, one of which is the government’s debt load. Many consumers assume that banks or lenders set their mortgage rates based on the prime rate, but interest rates work very similar to most commodities, and are influenced by a secondary exchange market. Interest rates have the potential to change multiple times during the course of one day. The rates that banks or lenders offer for a mortgage are correlated to the prices of mortgage backed securities or mortgage bonds. Mortgage bonds, are traded on a secondary marketplace and the coupon rate investors require is what directly raises or lowers the interest rate on a mortgage loan. Recently, many economists have voiced their concerns over the level of debt the U.S. is adding to its deficit and the long term implications this will have on the economy. Contrary to popular belief the government does not have an unlimited supply of money and when they need to raise capital, they often turn to the bond markets through the Treasury department and sell securities into the market. The concern over the level of debt has caused investors to require a higher rate of return on the investments, pushing yields on bonds higher. The higher yields on Treasury Bonds, significantly impact the yields investors seek on other types of bonds, including mortgage bonds.

The most common bond that casual investors follow is the ten year Treasury bond. The yield on the ten year bond dropped to 2.3% in early March and rose to nearly 4% in early June. The rapid increase in Treasury yields was influenced by investors returning to the stock markets, sharp increase with oil prices and the concerns over the debt level and the Treasuries ability to continue to finance their debt load. As the yields on the bonds have moved higher, fixed mortgage rates climbed over one full percent. The good news is that long term mortgage rates remain at attractive levels (under six percent), but are likely to remain volatile as the economy works through its challenges.

Consumers who are shopping for updated information on mortgage rates and the economy should request multiple quotes from local or national mortgage lenders. When comparing loan offers, be certain to compare the closing costs, third party fees and interest rate to determine the best offer. Best Rate Source offers updated information on the stock market and economy to help determine the direction mortgage rates are moving to help consumers lock in the best finance offers.