Is Now a Good Time to Borrow?

Mortgage rates have been a key focus for real estate investors over the past few years. They impact cash flow, cap rates, and overall returns, so it’s natural for landlords and investors to keep a close eye on them. The topic comes up at every networking event I attend. But despite the headlines and chatter around what the Federal Reserve is doing with interest rates, the reality is that mortgage rates are driven by forces far beyond the Fed’s overnight rate, and some would argue not controlled by the Fed at all, something I do not agree with by the way. To understand where mortgage rates might be heading, and how to make smart buying decisions in today’s environment, it helps to step back and look at the bigger picture

The National Debt and Fed Funds Rate

The United States is carrying record debt, and that debt continues to grow each year as we run ongoing deficits. Have you seen the national debt clock?  If not, please sit down first, and then check this out: https://www.usdebtclock.org/. Our government plans to spend roughly $1.7 trillion more than the amount it brings in over the next 12 months.  That’s a conservative estimate, as I’ve seen some projections of over $2 trillion.  This means the United States needs to borrow at least $1.7 trillion just to stay afloat.

On top of that, a large amount of existing debt is coming due and needs to be refinanced. Estimates suggest that about one-third of all U.S. debt matures before the end of March 2026 – roughly $10 trillion.  New Treasuries will need to be issued to refinance this debt.  That’s a total of roughly $12 trillion in new Treasuries that must be issued before the end of March 2026.

In its simplest terms, the government has two choices when it issues new debt: short-term and long-term. Short-term debt, such as Treasury bills, matures in weeks or months and is rolled over frequently. Long-term debt, like the 10-year Treasury note, locks in borrowing costs for a decade. The 10-year is especially important to real estate investors because it represents long-term borrowing and serves as the benchmark that lenders use when setting long-term rates, including mortgages.

The Federal Reserve has two mandates: low inflation and high employment. The primary tool the Federal Reserve uses to accomplish this is to set the overnight rate, which is the rate banks charge each other for very short-term loans. This impacts credit cards, auto loans, and home equity lines. But mortgage rates are more closely tied to the long-term bond market, or the 10-year treasury note, not the overnight rate. That’s why we’ve seen situations where the Fed cuts rates, yet mortgage rates rise.

The government can also influence the 10-year, but this process is not as publicly visible as the Fed fund rate we hear so much about.  The yield on the 10-year Treasury is determined by supply and demand in the bond market. When the government issues more Treasuries, supply goes up. To attract enough buyers, yields need to rise. Conversely, when there’s strong demand, whether from investors seeking safety, foreign governments buying U.S. debt, or the Fed itself stepping in through programs like quantitative easing, yields fall.

This is why mortgage rates can seem unpredictable. They are forward-looking, influenced by expectations of future inflation, government borrowing needs, and global capital flows. It’s also why two investors can look at the same Fed decision and have different opinions on where mortgage rates are headed next. 

Although we do expect a rate cut later this month and perhaps more by the year-end, most experts don’t believe that will translate into lower mortgage rates. Despite the noise, most experts see stability ahead. Economists at Fannie Mae, Wells Fargo, and the Mortgage Bankers Association, among others, all forecast mortgage rates staying in the mid-6 percent range through 2026. This doesn’t seem like great news for investors, but it can be, as predictability brings calm and confidence, which translates into less volatility.

What Investors Should Be Thinking About

It’s also important to keep an eye on the broader picture. The government can influence both the supply and demand for Treasuries. It will be forced to increase supply simply because of overspending, which puts upward pressure on mortgage rates. By issuing more bonds, it increases supply, and then by engaging in quantitative easing, it increases demand. It’s a never-ending cycle.

As small landlords and real estate investors, the lesson here is not to get caught up in where mortgage rates are heading next. If rates stay in the mid-6s, which appears likely, the focus should be on finding deals that make sense at those rates within your buy box. My thought is not to wait for rates to fall but to purchase based on solid, non-emotional fundamentals for a good investment.  A long-term horizon mitigates risk, and super short horizons (like fix and flip) are only slightly impacted by interest rate fluctuations as you buy and sell in the same market.  The real market risk in real estate occurs in the medium-term horizon, one to five years.  That’s when it is possible to be forced to sell in a down market. In general, the longer you own property, the more wealth you’ll have, so buying sooner rather than later – or better yet, sooner and later – is likely a smart move.

Mortgage rates are shaped by the complex interplay of government borrowing, investor demand, and inflation expectations. They don’t move in lockstep with the Fed’s overnight rate, and they won’t necessarily respond the way many people assume when the Fed makes a change. For real estate investors, the best strategy is to understand the drivers, accept that mortgage rates are likely to remain stable in the mid-6s, and focus on buying good deals that fit your investment criteria. You can’t control interest rates, but you can control your investment strategy and your financial future.