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5. (extra credit) Would you attempt to sell a fixed-rate or LIBOR-adjusted mortgage if the Treasury yield curve is inverted?



"Selling" a mortgage should mean that you own the right to collect the payments on an existing contract, and are looking to sell that right in exchange for cash today.

However, in context, we are talking about "initiating" a mortage rather than selling an existing one.

So, if I assume that the inverted yield curve is correctly forecasting a future decline in interest rates, I should try to lock in the relatively high current rates and loan the money at a fixed rate.

Does this even work anymore, though? It isn't the 80s when you paid points up front and refinancing was difficult and expensive. These days you can refinance for almost no transaction cost whenever interest rates drop, so you might as well treat a mortgage as a short-term loan no matter what the stated term is. In that case, I should push the ARM and get the higher short-term rates on it while I can. Of course, if there are pre-payment penalties and a discounted rate in the first years of the ARM, then it really is a case-by-case decision.

Oh, and also Hillary is much hotter than Leah, so I'm taking her side in this "feud".
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