Ever wonder why everyone’s saying that interest rates are at historic lows?

Mentioning that rates are at “historic lows” means exactly that: rates are at one of their lowest points, ever, for as long as interest rates have existed in the United States.

Check-out this graphical history of the Prime Rate.

But keep in mind: even though people are correct to say that rates are at “historic lows,” it’s important to know that an individual’s interest rate is determined by lending guidelines set by banks. These guidelines are determined by evaluating credit scores, employment history, salary and assets.

Here’s a recent PERL Podcast on interest rates.

If you’re currently gathering information about the in’s and out’s of financing, listen to more PERL Podcasts to better educate yourself about the home buying process.

And for a qualified up-to-the-minute interest rate estimate, contact your Mortgage Consultant.

In today’s financial climate, everyone’s becoming more informed about our nation’s markets and economic indicators.

Let’s take a look at mortgage interest rates, and a financial indicator that can help you determine whether they might move up or down.

The 10-Year Treasury
On a broad level, when the economy does poorly, interest rates go down. This is because the government, in an attempt to invite more money into the economy, lowers interest rates.

Historically, mortgage interest rates move in lockstep with the yield of the 10-year Treasury. If the yield on the 10-year treasury (i.e. the interest rate of the 10-year treasury) goes up, the price of the Treasury goes down, therefore the yield goes down and rates go up.

The 10-year Treasury yield also affects mortgage backed securities (MBS).

For a long time, the spread between the 10-year Treasury and the 30-year fixed rate mortgage was between 1.5 - 2%. So if the 10-year Treasury was at 3%, you could likely see a 30-year fixed mortgage at 5%.

However, last year, with the onset of the current global financial economic crisis, people became more concerned about investing in mortgages (and moved investments to stocks and bonds). The spread between the Treasury and interest rates widened.

So, the premium spread rose from 2-3%, causing a lack in correlation between the 10-year Treasury and mortgage interest rates — and an overall inability to accurately predict interest rate movement.

With the recent Federal intervention and injection of money into the economy, financial analysts are hoping that the margin between treasuries and mortgage interest rates will become more consistent and dependable.

The “Market Data” section of Bloomberg.com provides a great daily indicator of Treasury yields and mortgage interest rates.

For more information — and a radio interview with PERL Founder Ken Perlmutter on interest rate fluctuation, please listen to The PERL Mortgage Podcast.