Mortgage interest rates are falling, but they’ll drop even more in the coming weeks, giving some 18 million homeowners an opportunity to save money by refinancing.
Key interest rates dropped sharply in the early days of the pandemic, but mortgages rates did not follow in pace. The spread between 30-year fixed-rate mortgages and the yield on 10-year Treasury bonds usually runs between 1.5 and 2.0 percentage points. That spread rose, though, hitting a peak of 2.71 percentage points in April. Since then, mortgage rates have come down well below three percent (as of August 6, 2020), bringing the spread down to 2.33 percentage points. That’s good news for today’s borrowers, even though the spread remains above long-term norms.
To see how much further mortgage rates will drop, we need to understand why the spread rose so high. This is the crucial question, because the 10-year Treasury yield is very likely to remain low in the near future. As of this writing it is just 0.55%.