The 10-year Treasury note yield has recently risen above 3% for the first time since 2014! Leaving everyone wondering about what this could mean for the future of asset markets and the global economy.
T-Bill is a loan you give to the government
The 10-year Treasury note or T-Bill is a proof of debt from the government that is repaid ten years from the issued date. It pays a fixed rate every six months and returns the face value upon the end of the tenth year.
In short, a T-Bill is a loan you give to the government. As with all loans, you earn money from it, and 3% that was previously noted refers to the yield you earn from such a loan.
T-Bill percentage continues to grow
If the 10-year T-Bill percentage continues to grow, traders may assume that it will continually rise, which in turn raises suspicions about the state of the market, fueling fears with regards to a market correction.
Mortgage rates are correlated with the 10-year Treasury Yield. The higher the yield is, the higher of the 30-year fixed interest rate is.
5% by the end of 2018
Housing affordability becomes a fear of consumers as interest rates rise. Many economists predict that the 30-year fixed rate mortgage will reach 5% by the end of 2018.
Let’s use the average 30-year fixed interest rate of 4.5% (www.FreddieMac.com) for a mortgage of $400,000. The monthly principal and interest payment is $2,027. Should the interest rate go up to 5%, the monthly payment would be $2,147. The difference is $120/month ($4 more per day), which makes buying a house, even at 5%, very attractive.
A rise is not all bad
However a rise is not all bad. With the rise of this percentage comes the rise of housing values, and with that, mortgage insurance is unnecessary. Eliminating mortgage insurance can save you money. If you purchase your home with a minimum down payment, it is very possible to refinance your home with no mortgage insurance.
Currently the rates have risen only a little and lenders are now offering better loan programs because of the rise in housing values, which means right now is a great time to get a loan!