A Sign that Lower Mortgage Rates Are Coming

Here is a sign that mortgage rates will be lower in the next year or two as it’s been nearly impossible the last 3 weeks to offer a mortgage with zero discount points. Why? To do so, higher rate mortgage bonds have to be bought and sold and there is very little demand for higher rate mortgage bonds on Wall Street. Why?

For these higher rate mortgage bonds to be a good investment decision these bonds need to last or not be paid off for at least 3 or 4 years. If these mortgage bonds, backed by mortgages, pay off early then the investors lose money as they paid extra upfront for those bonds. And a large majority of bond investors believe mortgage rates and Treasury yields will be lower in the next 12-18 months. Thus, mortgage borrowers today often have to pay extra closing costs by way of a discount point when they lock in their rate.