A few weeks back we noticed that long-term interest rates were lingering at all-time low levels. The 10-year Treasury note, a benchmark rate, was somewhere around 2.8%. The comment at the time was that the rate was being held low by governmental policy and that movement would come swiftly if policy could not hold the rates low any longer.
And move it did. The 10-year Treasury note is now over 3.6% in less than a month, which is a significant move in terms of impact on debt service and investor profitability.
It will also have impact on home mortgage rates which have been at all-time lows for an extended period of time and which are certain to rise when the higher Treasury rates work through the system.
The good news is that short-term rates are still low and investors on floating-rate loans are still seeing all-time low debt service. Since these short-term rates are more a function of economic policy, which is in turn a function of political will, I see the short-term rates staying low for some time to come.
This all comes into play when investors look at new loans that have a floating-rate option and a fixed-rate option. Most of my clients have been picking the floating-rate option lately because there has been about 200 basis point savings over the fixed rate. Of course this savings can go away if short-term rates rise, but most investors are rolling the dice on that not happening in the near term.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
