Why Home Buyers Should Care About the 10 Year Treasury Bond

Why Home Buyers Should Care About the 10 Year Treasury Bond

interest rates

Bond. The 10 Year Bond.

Did you hear the news? In mid-May 2018, for the first time in more than four years, the 10 year bond yield actually made it above 3%! OK, so this fact may not have you jumping for joy. In fact, you may not feel much at all. You may even wonder why you should care about bond yields. But they have an affect on interest rates.

10 year treasury bond: This is a bond, or a debt, issued by the United States government for a 10 year period. You buy the bond at a certain price, and at the end of 10 years, you get the amount that you paid for the bond. You also get “extra” for letting the government have your money for that decade. This extra is known as the bond yield.

Bond yield: This is the extra amount that you expect to get in return for buying a bond. If you bought a $10,000 treasury bond that has a yield of 3%, then you would get $300 every year for 10 years. Yee haaa!interest rates

So yes, if you own bonds or were thinking of investing in them, then you might crack a smile at this increasing price. But if you are an aspiring home owner, then that bond yield may not leave you with thrills. Why is this? It’s pretty simple.

Typically, when the 10 year treasury bonds rise, so do interest rates on mortgages. Because of this, fewer people will refinance their mortgages or even buy their first home.

Know what else? The bond yield is expected to rise and that means a greater return on your bonds, if you have any, but it will make for some unhappy people who want to buy homes.

The Silver Lining

Take a look – way, way out into the horizon…what do you see? Potential. Opportunity. Stability.

What tends to happen when interest rates rise? The price of housing tends to fall, due to the extra expense of those darned interest rates. And that could mean more affordable housing – if you are patient. Just take a look at interest rates. Over the last 10 years, the average 30 year fixed rate was 4.5%. Over the past 20 years, 5.625%. And over 30 years? 6.75%! So as rates start to rise, eventually, home prices should start to fall.

Rome wasn’t built in a day. So while Rome is being built, you can prepare yourself for when that right house comes along:

  • Build up that down payment if you can. In terms of having available cash, the more the merrier.

Did you know?: If you are having trouble saving up for a down payment, don’t worry! Shamrock Financial has the answer. We offer a number of exciting and affordable options, including low down payment and even 100% financing! Ask us.

  • Get pre-approved: This gives you an idea of what you can afford and locks you in to a great interest rate. Plus it helps you map out your target down payment goals when possible.
  • Check that credit report: Mortgage lenders see it, so why not you? This report contains your financial history, and personal and employment details. Is it correct? Is it complete? Wrong details can affect how much you could get approved for. Are there things you need to work on? Now that you have some time, get to it!
  • Cash on hand: Buying a house costs money. But it is those pesky little fees and expenses that can squash your enthusiasm for the process. So, in addition to your down payment, get another account going, one that will be used for the moving costs, legal fees, home inspection – anything and everything related to buying a home. Shamrock Financial can help you with the list of these items and determine a figure to aim for.
  • BOLO: That’s police lingo for Be On the Look Out. The right house isn’t going to jump in your lap. Keep an eye out on those listings so that when a house – your house – comes on the market, you are ready, willing, and most of all, able to act.

Yes, interest rates are on the rise, and that’s no fun for an enthusiastic potential home owner like yourself. So use that change in the economy to your advantage. When others are dropping out, you can squeeze right in, knowing that your finances can happy and healthy to take on the responsibility of home ownership. If you need to get pre-approved, or just want some general mortgage advice, we at Shamrock Financial can help. Give us a shout, and get on track to home ownership starting today.

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