AgentMortgage

Best mortgages in today’s market

Higher rate may be most beneficial in long run
Published on Nov 6, 2006

"Are some types of mortgages priced better for the borrower than others?" If you qualify for prime lending terms, there isn't much reason to select an adjustable-rate mortgage (ARM) in the current market. For most such borrowers, the temporary rate benefit in the early years is too small to justify the risk of higher rates later on. This is a consequence of what has been referred to as a "flattening of the (bond) yield curve." The yield curve is a graph that shows, at any given time, how the yield varies with the period to maturity. A flat yield curve means that yields on long-term bonds are not much higher than those on short-term notes. Bond markets affect mortgage markets, and vice versa, because a large part of all new mortgages are converted into mortgage-backed securities (MBSs), which investors view as close substitutes for government securities and high-quality corporate bonds. Developments in the MBS market, in turn, are immediately reflected in the primary mortgage market w...

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