The Disassociation Between Mortgage Rates And The 10-Year Treasury Note
This chart may read like gibberish, so I notated it.
It’s meant to illustrate that daily mortgage rates are not based on the yield of the 10-Year Treasury Note. Sure, there is a long-term correlation between the two, but "long-term" doesn’t do us any good when we’re looking to lock an interest rate today.
We’ve covered this topic in-depth once before, but it’s worth revisiting.
Mortgage rates are based on the price of mortgage-backed securities, plus all applicable fees. Specifically, the formula works as follows:
- Start with the base mortgage rate, as set by Wall Street
- Add adverse market delivery charges
- Add loan-level pricing adjustments
This mortgage-rate formula is a major reason why rates rarely vary from lender-to-lender. There’s just no wiggle room in there because the rate is set by the combination of mortgage-backed bond prices, plus whatever fees that Fannie Mae and Freddie Mac tack on top.
In other words, conforming mortgage rates have nothing to do with the daily 10-Year Treasury yield (although the press may tell you otherwise).
Today’s chart confirms it.
Now, as an unfortunate post-script, getting access to pricing in mortgage-backed securities is both difficult and expensive. So, if you ever have questions about what mortgage rates are doing on a given day, just know that you can always call or email me, or follow me on Twitter.
I’m happy to share with you what I know so you can make better mortgage decisions.