I am assuming you are happy and free to offer some help I applied for a mortgage earlier today. For a 30-year fixed rate mortgage, why does the lender still refer to 10 year bond rate rather than 30 year fixed rate?
…because the 30 year mortgage rate tends to be somewhat closely aligned with the 10 year treasury rate (similar duration). ie, if 10 yr rate goes up the 30 yr mtg rate tends goes up (with differing credit spreads of coarse). However, this doesn’t exactly hold considering the current situation…
thanks, I understand what you mean. they are closely correlated. but since there is already a 30yr fixed rate , why not just look at 30yr directly… is 30 yr mortgage funded by 10 year bond?
The life of a mortgage is shorter that 30 years due to prepayments.
The mortgage loan has a duration that is closer to that of a 10 yr. treasury. That means that they respond similarly to changes in interest rates. The duration of a 30 year treasury is greater than that of a 30 yr mortgage and the two aren’t related.