For some time I’ve been watching mortgage rates at several places online. I noticed that the spread between different terms tells an interesting story that changes fast (in normal times it probably doesn’t change quite as much). A couple of months ago the premium for getting a 7-year fixed rate instead of 5 years was very small – if you were happy with the rate it would be cheap to get a similar rate for a longer time. That’s changed now to a big gap between 5 years and 7-10 years.

This seems to indicate how lenders perceive risk over different time periods. If the spread is small they might expect most of the interest rate increases near the start of the term, with more stability farther out. On the other hand, if there’s a large spread they might expect lower costs at the start with more potential for increases after a few years.

I wouldn’t read too much into this though – if there’s one thing we learned this year it’s that sometimes lenders’ risk predictions are outside even their own comfort zones.

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