The Basics of the Treasury Yield & Why It's a Big Deal

The 10-Year Treasury Yield crossed 3% for the first time in four years. The treasury yield is a dense and complicated financial issue. It can be difficult for those outside of the financial world to understand what it means. Even articles designed to teach people about the treasury yield can be confusing. But this recent development will have an impact on you and your future.

Here are the basics of what you need to know:

A 10-year bond is a loan given to a company or to the government, which we call the treasury.
This is in contrast to stock, which is buying ownership in a company.
Your yield is what the return you receive on your bond after the effects of inflation.

So as the treasury yield rises, you’ll get more money back from your bond, which is an excellent low-risk investment option compared to stocks.

How Does The Treasure Yield Affect Me?

The 10-year treasury yields directly impact mortgage rates. It’s possible the yield will dip back down, but if it stays above 3% and keeps climbing, that means mortgage rates will also go up.

If you’re looking for a home now, you know, the current fixed rates are at an all-time low. There haven’t been better rates than this since the 1950s. But we can expect this to last forever and the rise of treasury yield indicates things could be changing soon.

My main concern with increased mortgage rates is that as fixed rate mortgage rates increase, more people will be tempted to choose Adjustable Rate Mortgages.

With an Adjustable Rate Mortgage, or ARM, you receive an introductory rate at a fixed level for a certain number of years, traditionally five years, and then this rate will jump.

Is An ARM The Right Choice For Me?

5-year ARMs are attractive because you get low interest up front, letting you purchase a better home with less money. But since the rate after those years is usually increasing exponentially and will be unpredictable, this is really only a good idea if you’re sure you’ll be out of that house within the first five years.

The problem is you have no idea what will happen in those five years. People have all sorts of plans for their future, they plan to get a promotion or raise in the next few years, they plan to have kids, they plan to move to another city, but plans fall through all the time.

Then you’re stuck with a high-interest mortgage until you can get out, which may take longer than you’re able to support.

This is a difficult financial situation to be in and is more common than you may think. This is why I’m always cautious to recommend ARMs to my clients.
ARM’s are too risky for the average homeowner, especially when the current fixed mortgage rates are so low. It’s almost always better to get a higher-rate mortgage at a fixed rate than an adjustable rate. Why would you want to take any added risk?

I recently got a text from my dad, which shared with me that his Adjustable Rate Mortgage in 1981 was 15.5%, which means the fixed mortgage rate was even higher. But we have it so good right now! You can get a fixed mortgage anywhere from 3% to 5%. It’s an amazing time to buy a home, but even as things change in the future, it’s important to make decisions that are best for your future, not just for right now.

That’s where I can help!  First I would love to answer your questions about anything related to your financial prosperity and quality of life. Secondly, our team enjoys helping you find the best mortgage loans and giving you the peace of mind that you can handle your loans in the long-term, regardless of how the world changes around you. We can help.

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