Expetitle Blog

What Zero Rates, Sub-1% Bond Yields Mean for Your Mortgage

There’s a silver lining in the economic anxiety Americans face: Interest rates are at unprecedented lows, and benchmark bond yields have dropped below 1% for the first time in history, conditions that are likely to cut borrowing costs even further on everything from mortgages to student loans.

The Federal Reserve lowered borrowing costs to near zero Sunday in an emergency move to combat the economic shocks from the coronavirus pandemic. Meanwhile, the 10-year Treasury yield, a key benchmark that influences borrowing costs on houses and auto loans, slumped further to historic lows this month as virus fueled worries stoked fears of an economic slowdown.

But experts say borrowers are poised to benefit from the combination of lower rates and a drop in bond yields in the coming months.

Two hands shaking over a table with a model house, pen, and documents.

Mortgage rates have dropped to historical lows as bond yields have fallen, a move that could help first-time homebuyers and those looking to refinance. When Treasury yields fall, banks charge lower interest rates for mortgages.

The Fed’s key short-term rate affects 30-year mortgages and other long-term rates indirectly. The average fixed rate for a 30-year mortgage rose to 3.36% last week, up slightly from an all-time low of 3.29% the prior week, according to Freddie Mac. That’s almost a full percentage point lower than 4.31% a year ago.

"This is the time to refinance," says Julia Carlson, founder and CEO of Financial Freedom Wealth Management Group.