CFO Focus: Mortgage rates will rise with credit union impacts

Take advantage of the current refi boom and prepare for a more volatile economy.

Low mortgage interest rates have had a huge impact on credit unions as well as the rest of the financial services sector. The low rates have fueled a refinance boom that continues to this day. They have also enabled many young families to become homeowners—or try to become homeowners—earlier than they otherwise could have. And they have also helped apartment dwellers who changed their attitudes about urban living when the world went into lockdown. These last two impacts have pushed home prices to record levels, boosting the average principal value of mortgages.

But no party lasts forever. Eventually, long-term interest rates will rise, and mortgage rates will go up with them. Most likely that will begin in 2022, though plenty of economists predict it will happen later. The rise in rates will be closely tied to Federal Reserve policy, though other market factors will be at work simultaneously.

Mortgage Rate Fundamentals

First, let’s review the fundamentals of mortgage interest rates. They loosely follow global long-term interest rates, which bring into equilibrium the worldwide demand for credit with the worldwide supply of savings. Within a particular nation, such as the United States, global interest rates combine with country credit risk and inflation expectations to result in treasury bond interest rates. Then mortgage-specific factors determine the spread between treasury bond rates and mortgage rates.


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