What is one indicator that can help show me which way mortgage rates are going? Today, we’re going to talk about an indicator out there that, if you watch it, will give you a pretty good idea of the direction in which mortgage interest rates could be headed in the near future.

Now, how could this help you?

If you happen to be looking for homes and you’re thinking, “Alright, I hear rates are going all over the place—they’re up, they’re down. How can I get a feel for today if I’m going to call my loan officer and ask about where rates are?”

If you want to get a sense of the direction that rates have been going, you can watch this one indicator and get a good idea.

This way, if you get quoted a rate—let’s say I gave you a rate one day—remember that rates move all the time. So, if we didn’t lock it in, the rate is going to keep moving.

But if you got quoted one day, and then the next day you found a home you love and looked at this indicator and saw that it went down, there’s a decent chance the rate should be about the same, if not better.

If that indicator went up, there’s a good chance your mortgage rate might be a little bit higher if you didn’t lock it in.

So, why is this indicator important?

It’s really important because it’s what a lot of industry experts and investors who buy mortgages watch as well.

If you know this one, you can get a good feel for where mortgage rates are headed, whether you’re looking to buy a home or trying to lock in a rate for refinancing. It gives you a good idea.

That indicator is the 10-year Treasury yield.

The 10-year Treasury yield is closely tied to where mortgage rates go. Some people assume the Federal Reserve rate is directly related; they think, “Oh, the Federal Reserve rate went up, so mortgage rates must go up,” or “It went down, so mortgage rates must go down.”

But that’s not the case.

The Federal Reserve rate affects mortgage rates indirectly, usually in advance, based on what the Fed says, not necessarily where it sets the rate.

The 10-year Treasury yield, though, typically has a direct impact on mortgage rates.

Historically, while not always perfect, it’s been a good indicator for a long time.

Some people like to say it “dances closely” with mortgage rates.

Is it perfect?

No.

But most of the time, if that 10-year Treasury yield goes up, you might see mortgage rates go up a bit. If it goes down, you might see mortgage rates drop a bit.

If you’re trying to find where the 10-year Treasury yield is, you can easily check it.

On an Apple phone or Android, go to your stock app and look up the ticker “TNX.”

“TNX” is the 10-year Treasury yield—a basic index showing the general direction.

You’ll notice that the numbers may be lower, like around four. This doesn’t mean mortgage rates will be at 4%, because the 10-year Treasury yield reflects the “risk-free rate,” essentially the government’s lending rate for 10 years.

Mortgages, while generally safe, aren’t as risk-free, so mortgage rates are typically a bit higher than the Treasury yield.

However, the direction the 10-year Treasury yield moves is often the direction mortgage rates will move as well.

The reason is complex, but simply put, the 10-year Treasury yield is what many investors and groups use as a way to hedge against mortgage rates.

So, if they want to hedge risk, they’ll use the 10-year Treasury yield as a baseline, adding a premium for mortgages.

Ultimately, the 10-year Treasury yield drives mortgage interest rates. So, when you’re buying a home or refinancing, and you’re wondering if now is the right time to buy or lock in a refinance rate, watching the 10-year Treasury yield can give you a good sense of which way your mortgage rates might be headed.

My name is Evan Kaufman, your VA loan originator, here to help you. Take care.