The past ten days have seen unprecedented swings in the Dow Jones average. Europe seems on the brink. French banks totter. France’s credit rating is threatened. The United States has been downgraded.
So where is money flowing in a flight to safety? Into U.S. Treasury bonds. As these bonds increase in price, their yields fall. U.S. Treasury bond yields are the single most important predictor for mortgage interest rates. Hence such rates are at record lows.
Report: With the exception of the five-year adjustable rate mortgage — usually the most stable of the ARM family — all other rate categories are in freefall. One- and three-year adjustable rate mortgages have swung wildly, and are now in a solid downward trajectory, with the one-year version dropping by a whopping 580 basis points and the three-year ARM falling by almost 300 basis points.
That makes those adjustable-rate loans much cheaper, but note this: ARMs include the term “adjustable” for a good reason. They reset or adjust at the one-year or three-year mark, and that reset could push your mortgage rate up if the economists are correct and interest will be rising soon.