With mortgage rates increasing across the board, it is an excellent time to review your mortgages. According to Bankrate.com, the average rate for 7/1 Year Arms went from 3.2% at the start of September, to 3.64% as of yesterday. A meaningful increase but still well below pre-crisis levels when that rate was never below 4%.
There are a few reasons you should examine your mortgages right now and decide if you have the best mix of long and short term borrowing (I think you should extend your borrowing if you haven’t already):
- The Federal Reserve seems intent on raising rates. It seems as though any time economic data disappoints, the Fed is quick to explain why that should not deter them from hiking. While the Fed is notorious for building up expectations of being hawkish, and then being dovish – I think it is right to expect higher short term rates in the future.
- The Fed is slowly decreasing the size of their balance sheet. While their treasury holdings get most of the attention, they are major players in the mortgage market. At one time the Fed was buying over 75% of new mortgages being created. As they reduce the size of their mortgage holdings, it is reasonable to expect the spread of mortgages over treasuries to increase – making mortgage rates even higher.
I first wrote about managing how you are financing yourself in August 2016 (here). Anyone who listened then has saved themselves a lot of money. While we all tend to spend a lot of time analyzing our investments, the asset side of our personal balance sheet, managing the debt or liability side of our balance sheet can also help your personal finances greatly.
Tchir, Peter. “It Is Not Too Late To Re-Examine Your Mortgage.” Forbes, Forbes Magazine, 27 Oct. 2017, www.forbes.com/sites/petertchir/2017/10/27/it-is-not-too-late-to-re-examine-your-mortgage/#7f47149a4f88.