The Marquee Loop: ARM vs. Fixed Rate Mortgage
Why is the rate on an adjustable rate mortgage higher than a fixed rate mortgage?
In a few words, an inverted yield curve. This happens when the yield on a short term treasury bond (2 year) is higher than a yield on a longer term treasury bond (10 year). Adjustable rate mortgages (ARMs) usually offer lower rates to borrowers rather than a fixed rate mortgage. Today, that is not the case, which is prompting buyers to apply for a fixed rate mortgage rather than an Adjustable rate mortgage.
- Adjustable rate mortgages are more closely tied to the yield on a 2 year bond
- Fixed rate mortgages are more closely tied to the yield on a 10 year bond
- When the yield on the 2 year bond is higher than the yield on the 10 year bond, that’s called inversion.
In conclusion, inversion has been increasing ARM interest rates and are continuing to do. If you have any questions regarding mortgage rates, feel free to contact one of our loan officers for further details.
*Marquee Mortgage LLC, is an independent, full service broker specializing in purchase money loans, refinances and creative lending solutions