Can't Refi; What is Treasury Yield Curve Rate Likely to Do? (2%, mortgage rates)

[homeboy4]

I have an adjustable home mortgage that adjusts annually based on the Treasury Yield Curve Rate plus 2.75%. Based on the last adjustment in April, my rate current is 2.85%. As of today, the TYCR is .13. I know that rates are going up and should refinance. My credit is fine at 760, but I have three big negatives: (1) my income to debt ratio is out of whack due to a very large credit card balance, (2) I own my own business (28 years years) and essentially pay myself only what is necessary, and (3) I owe $600K on a house worth about $700K. I have had the house since 1987. The mortgage balance is high because I took cash out and bought a small commercial building. If refi decisions were based solely on payment history, or if I could get a no doc loan as in days past, I'd sale through like a champ: no missed or late payments on anything. But that's not the case.

So here's my question. Since I can't refinance, what can I expect from the Treasury Yield Curve Rate in the future? I know that no one has a crystal ball, but if anyone is familiar with this particular index, can you tell me what it is influenced by, or how it tracks other indexes? For instance, if it's likely only to rise by 2% over the next 5 years or so, maybe it won't be too bad.

[Ted Bear]

There is no such thing as "The Treasury Yield Curve Rate".

There is the Treasury Yield Curve....which is likely to steepen a little bit as long term rates (uncertainty) rise more quickly than do short term rates (where the certainty of easy money is known). You really don't need to be concerned with the Yield Curve.

And then there is the Treasury Yield. In your case, a specific point on the yield curve. Probably the One Year Treasury Note, or some other short term rate. Read your contract and it will be in there. Whatever it is , you pay 275 basis points (2 3/4%) over that specific rate.

So, the question is where will that one year rate go? It has already risen sharply (from .13% to .15%--which in real terms is nothing) in the last few weeks as the bond markets wrestle with Bernanke's comments about ending quantitative easing/free money. How much higher will it go on the short term? Probably not much higher. The market 'thinks' that the ten year treasury note might hit 3%--it is at 2 1/2% +/- now. The shorter maturities will go higher as well, but not dramatically higher--i.e., the yield curve will steepen.

You asked if it is likely to rise by 2% over the next few years. That is unlikely given how weak the economy is. Of course, it the rate should rise substantially it will likely happen because of economic strength, which will in turn create demand for real estate, and thus what you 'lose' in higher payments you might make back in increased value of your property.

For now, I wouldn't worry about your deal. Roll with the punches. With the Fed manipulating interest rates and a LOT of people in your same predicament it is unlikely that anything dramatic is going to happen on the interest rate front. You can rethink your approach if something changes--but do you really have any other options??

[sholomar]

I would count on it going back down, since this is a false recovery in need of continued bailout basically until everything collapses.. they are just prolonging the inevitable by purchasing bonds, but they are not going to stop more than temporarily.

I should have bought a house when the 30 year was low, but I didn't, and I'm pretty stubborn and am not going to pay a full hundred bucks a month more because mortgage rates are up a full percent, given that housing prices around here are still priced as though mortgage rates are at 3.5%, I'll wait until the irrational exuberance in the stock market eases and things come back to reality and rates go back down before buying my home.

Without their bond buying everything would have likely collapsed and we'd be in a deep recession, and they will basically have to buy bonds indefinitely to prop their phony credit bubble up.

[homeboy4]

Originally Posted by Ted Bear

There is no such thing as "The Treasury Yield Curve Rate".

Thanks for your very complete answer. And, as you close, you're right. I don't have any easy options. I just wanted to get a sense of (1) how much I should worry, and (2) whether I should be going for a hard money loan at whatever those rates currently are because as outrageous as they are they would be better than the maximum of 10.875% to which the loan is allowed to rise.

BTW, the TYCR came from an email from Wells Fargo when I inquired about the index is on which the rate is based. They gave me that name and referred me to this page: http://mortgage-x.com/general/mortgage_indexes.asp with the rate in question -- they said -- on the upper right in the table called "Treasury Yield Curve Rates." Even if that is the wrong index, the rate has matched their calculations when they adjust the rate.

As you suggested, I went back to the note and it says this: "The 'index' is the weekly average yield on United States Treasury securities adjusted to a constant maturity of one year, as made available by the Federal Reserve Board." In the most recent letter I got from Wells it says: "Index source: 1 Year U.S. Treasury Security Weekly Average."

None of this is to disagree with you. You pegged it right. Just giving you the backstory.

[oregonwoodsmoke]

If you are really worried about it, you could sell. The house is worth more than you owe. Better to sell before you get in a position where you lose the house.

If you can afford higher payments, that is different, but if higher payments are going to ruin you, get out now.

Have you spoken to a couple of different mortgage brokers? Maybe one of them can find you a fixed rate mortgage. A new fixed rate mortgage is going to cost a lot more than 2.85%, though. Without checking, I think they are probably up over 4%.

If you can afford more payment, maybe it is time to double up payments and get rid of as much of that mortgage as you can afford to pay off.