Even though mortgage rates declined this week, they remain nearly one full percentage point higher than expected, given the yield on benchmark Treasury yields. One year ago, when the credit crunch began, the average 30-year fixed mortgage rate was 6.58 percent. While that isn't much different than the average of 6.66 percent today, the yield on benchmark 10-year Treasury notes was considerably higher 12 months ago, at 4.7 percent. Now, the T-note yield is 3.79 percent. The spread between mortgage rates and Treasury yields, currently around 280 basis points, is 100 basis points wider than it was one year ago and the widest since 1986. Why? Investor skittishness about continued delinquencies and defaults has resulted in higher risk premiums, with additional fees layered on by Fannie Mae and Freddie Mac also increasing costs to borrowers.
Although mortgage rates have been relatively calm in recent weeks, it has been a wild ride for much of 2008. Three months ago, the average 30-year fixed mortgage rate was 6.02 percent, meaning that a $200,000 loan would have carried a monthly payment of $1,201.67. But at today's rate of 6.66 percent, a $200,000 loan would mean a monthly payment of $1,285.25.
