In the past couple weeks, the U.S. Treasury’s yield curve has took an interesting turn into what is called an inverted yield curve. The interesting thing is that people aren’t just being concerned about a possible recession from it, but the real estate market is also being diversely affected.
In the real estate market, most adjustable-rate mortgages provide lower rates than most fixed-rate loans because they have a higher risk (the price can increase when it comes to ARMs as compared to a fixed-rate home loan), and most people borrowing don’t like the idea of paying more money out of pocket for more risk. ARMs are also more commonly at a fixed rate for a shorter time frame than actual fixed-rate loans, which range anywhere from five to 10 years. While the loans are still decreased after 30 years, and the overall payments is often comparable to fixed-rate loans, the ARMS interest rates are currently higher than the traditional 30-year fixed rate loans right now, which is very interesting.
Now due to the inverted yield curve, we’re seeing numerous ARMs up as the traditional 30-year mortgage rates have fallen, putting them more closely together. The end result however is that traditional mortgages rates are more often less now. Unfortunately, though because of this mortgage rate scramble to rescue the real estate market, lenders are bouncing rates all over, and this is putting a humongous damper on the willingness to get new mortgage rates.
This is why many people are refinancing their homes or choosing the traditional rates lately instead of an ARM.