Interest rates are efficient but edges still exist

When borrowers pick a mortgage term they seldom think about how efficient interest rates are.

They scarcely consider that mortgage terms are largely priced off market expectations for future rates—specifically, the market's expectations of average rates over a term's duration.

Take a 3-year fixed rate, for example. It generally tracks the 3-year bond yield, plus a spread that covers a lender's costs, risks and profit.

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