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Bank rate

If you do have money in the bank ,you will receive less than one quarter of a percent.and if you go to the bank for a loan presently now they will charge you over four percent ,why?
  • October 07 2013 - New York
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Answers (6)

I get the most joy I ever get from Zillow when the Ten Year Treasury rate as an indicator of mortgage rates debate starts. It's fun stuff.

If the guy below had said the ten-year's movement is one convenient way to generally gauge the movement of mortgage rates, would y'all have given him hell? Even Pasadenan relates the movement of mortgage rates to the ten-year, everyday, in his miniseries known as "Rates on the Move Again".

In the widely taught theory of interest rates that states that any rate is the risk-free rate plus a spread for risk, what would you guys use as the risk-free rate? The pricing of MBS is bond pricing theory across many rates which is then boiled down to a rate matrix for rate sheets. The average thirty year mortgage rate, which is an academic sort of number, but is what the general public sort of follows, and asks about at cocktail parties when you have to admit to being a mortgage guy, is as akin to the ten year treasury yield as it is to the price of a tranche of MBS paper yielding a similar rate. Isn't it? Not arguing, just discussing. Trying to learn something.
  • October 08 2013
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  • October 08 2013
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the movement of the 10-year Treasury bond yield is said to be the best indicator to determine whether mortgage rates will rise or fall
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I disagree.

Most mortgages outside of the portfolio arena are packaged as mortgage back securities (MBS); making it no leap of logic to assume that the best indicator of mortgage rates would be to follow mortgage back securities trading activity.
  • October 08 2013
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I'm sure that you spent a lot of time on your response, Mark, Let's just keep it simple. Banks are not Non-Profit organizations, It's called Margin, the general rule of thumb in US economy.
  • October 07 2013
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"Although there are a slew of different factors that affect interest rates, the movement of the 10-year Treasury bond yield is said to be the best indicator to determine whether mortgage rates will rise or fall. "
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Hate to break it to you, but the 10 year is no where near the "best indicator" to determine whether rates will rise or fall. I would explain it but I don't want to deprive Pasa the opportunity for a diatribe.

As for the rest of your post... all I can say is "wow."
  • October 07 2013
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Great question!
Although there are a slew of different factors that affect interest rates, the movement of the 10-year Treasury bond yield is said to be the best indicator to determine whether mortgage rates will rise or fall.
Why you ask?
Though most mortgages are packaged as 30-year products, the average mortgage is paid off or refinanced within 10 years, so the 10-year bond is a great bellwether to measure interest rate change.

Saving accounts, on the other hand...
...are set by the individual bank offering the account. The bank can pay you this interest rate because it is using a portion of your funds for investments and loans, increasing its own income. When the bank is earning a lot through this technique, interest rates may be high. Otherwise, banks will cut savings account interest rates.

Following the financial crisis of 2007, many banks made moves to reduce their expenses and increase their income. They were suffering from defaulted loans and reductions in their investment income. To reduce expenses, banks slashed rates on savings accounts, CDs and annuities. To increase profits, they raised the amount of money needed to maintain an account, and some even started charging for standard banking services that were previously free. While it is possible to escape low savings rates by going to another bank, it is common to see this type of trend throughout the whole banking system. It is rare to find one bank offering significantly higher rates than another, so consumers are generally stuck with the "going rate" the market is offering at any time.
  • October 07 2013
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