Tom’s Advice on Interest Rates and Whether we Should Consider Refinancing
Transcript:
Easan Arulanantham:
Interest rates are kind of All Time Low. Where do you see them going over the next year? And should I try and get a refinance my mortgage? Or should I wait a little longer?
Tom Vaughan:
Yeah, good question. Actually, this has come up several times. Actually, this, I have something prepared for this, I’ll show you. Let me share the screen real quickly. And I’ll kind of just demonstrate what I think is happening with interest rates. And hopefully you can see this well here. So this is a super long term chart from Yahoo, finance of the 10 year Treasury yield, going back to 1961. And you can see here, this big giant run up, right, amazing. And many people in the audience probably can remember, you know, way back when mortgages were, you know, 15 to 18%. And that’s because the high point right here was almost 16%, on the 10 year Treasury.
But if you look from 1981, there till now, we’ve had just this unbelievable decrease in the yield on the 10 year Treasury, I mean, historic America all the way down 2.57% here last August. So all the way through here, we’ve been refinancing, as you know, because the 10 year Treasury and mortgage rates are fairly tied together, you probably could add two or 3% to the 10 year Treasury and probably be pretty close to what mortgage rate might be when you go to do a refinance or a new purchase. And so I’ve seen several different situations where people have asked me, you know, what, what they should do, here’s what I see right now, though, we’ve come from a half percent, almost all the way up to, if you look right now is 1.63%, just in a really short period, that literally since August, and the pressure on price increases right now is really unprecedented.
There’s trillions of dollars of pent up demand that’s going to be released into the economy here, you throw in the stimulus, you throw in the infrastructure plan, you throw on the American families plan, I mean, just unbelievable amount of pressure on prices, because there’s so much, you know, money coming into the system. And what that means is that usually rates go up. And if you look here, you know, the 10 year Treasury was 3%, back in, you know, 2000, end of 2018. Here again, you know, in end of 2013.
So, you’re looking at, you know, kind of a 5%, mortgage, five and a half percent mortgage rates, you know, in those timeframes, most likely, it’s pretty likely that we kind of move towards that, it does get a little bit more complicated when you really think about all the things that are happening, that are driving interest rates, because the you know, here in the US, we’re reopening fairly quickly, and we’re seeing fantastic earnings and revenue growth, but it’s not happening all around the world. And that makes a difference, because if you’re in Germany right now, you know, they’re having some problems with the virus, mainly because the vaccine hasn’t been coming out as fast. And their 10 year Treasury right now is negative point 3%, you actually have to pay them to hold on to the money.
So if you have a choice between a German 10 year Treasury or a US 10 year Treasury, you know, I would choose the US Treasury because it’s paying 1.6%, Japan is at point 1% on their 10 year Treasury, same issue. So really to see sustained, you know, growth inside of these yields, you need to see some growth in the yields around the world, which really probably means we need a better distribution of the vaccine situation that’s happening in India really is an eye opener. So that would keep rates down as far as that goes. But then we have all the stimulus coming in on the other side, and they have to issue new bonds, which makes rates go up.
So I suspect with the pressure of reopening, and the pressure stimulus and the reopening that will start to happen. By the end of this year, you’re gonna see higher interest rates. And that means higher mortgage rates. So if you’re going to refinance or buy a house, I would really be looking at trying to do that, you know, before September, October before things start to get pretty hot. And maybe even earlier than that. But that’s, that’s what I’d be watching is this 10 year Treasury, just to kind of get an idea of what might be happening. And again, we are at historic lows and very close to that even still, even after this movement up. And so we have a chance that you know, we’re going to see mortgages come up. So if you do want to refinance, you know, now’s the time, they just come down a little bit too, so could be could be a good chance.