Although a 30-year mortgage term is the standard, very few homeowners keep their original mortgages for that long.
In fact, the average person will refinance his or her mortgage every three to five years, according to official estimates.
With so many homeowners refinancing so often, it behooves you to learn about mortgage refinance rates.
What moves current mortgage rates either up or down? Like the value of the U.S. dollar, mortgage rates are influenced by a number of economic factors, including inflation, lender margins, and foreclosures, but the greatest indicator of mortgage rates is the 10-year treasury bond. Generally, lenders set their base mortgage rates approximately two percentage points higher than the 10-year bond yield.
The best mortgage rates are available when bond prices go up due to investors’ fears about the health of the economy. When the economy is bad, what is known as a “flight to quality” occurs, wherein investors seek out the safety of the U.S. Treasury, which is backed by the U.S. government. As more investors buy bonds, the price goes up and the yields go down, as the two move in opposite directions. And when yields go down, mortgage rates go down along with them.
As you’re aware, mortgages are available in either fixed-rate or adjustable-rate form. When mortgage rates are low, an adjustable-rate mortgage (ARM) could save you money over a fixed-rate mortgage. However, when interest rates are high—or if you’re not comfortable with the interest rate changes of an ARM—a fixed-rate mortgage might be the better option. Even if you’re happy with your ARM and fluctuating mortgage rates, refinance now and you might be able to change the protective cap on your mortgage that limits how much your payments can increase. For whatever reason you decide to refinance, home mortgage terms and conditions should be readjusted in a way that benefits you in the long run.