Dollars and Sense

Tolbert Rowe brings his thoughts on financing and his common sense every month.

Mr. Rowe is Vice President/Lending for Bay Capital Mortgage Corp. with offices in Easton and Annapolis. He has lived in Caroline for his entire life and supports the county by volunteering in a variety of ways. He currently lives near Greensboro with his wife Jeanne

and daughter Kelsey.

On Thursday before Easter, a friend asked me a very simple question, “when will mortgage rates go back down?” Quickly I answered, “not anytime soon.”
Her head and shoulders dropped and in an exasperated tone replied “Ugh, really! What makes you so sure?” As I pondered answering, I lamely explained to her that I believe that because of the war in Iran and its impact on the price of oil that the rate of inflation will begin to rise, possibly significantly. The price of oil is exceeding $100 a barrel as I write this.
The war in Iran could not come at a worse time for interest rates. The reduction in government revenue from tax cuts for individuals and businesses has not been offset by a reduction in government expenditures. The cost of the war in Iran is becoming a longer-term financial commitment on the part of US government.
The trillions of dollars in savings from Elon Musk’s Department of Government Efficiency (DOGE) never materialized. As complicated as the DOGE savings became with program shutdowns and employee firings, the result was total savings of $200 million with some estimates significantly less than that.
The Supreme Court ruling that Trump tariffs were illegal and must be paid back in 45 days means the US government will not have those funds to spend and will need to refund what it has already collected.
Don’t get me wrong, I am all for paying less in income taxes. What I find myself struggling with is the failure to couple these tax cuts with a corresponding reduction in government spending. The war in Iran, whether justified or not, will be financed with borrowed money, along with much of Federal government activities. Neither political party has a commitment to dealing with the fact that our government spends more than it makes as it has for decades.
The US government has not operated in any fiscal year with a surplus since 2001, when Bill Clinton was president. For 25 years, we, the taxpaying citizens and businesses, have paid less in taxes and fees to fund the operation of the Federal Government than the revenue it takes to make it run. Or put another way, the government spends more than it makes.
To overcome this shortfall and stay in business, the US Treasury sells IOUs to investors. In return, these investors are paid interest with the full faith and credit of the US that the principal and interest will always be paid.
US Treasury obligations are known as Treasury Bills (T-bills) and Treasury Bonds (T-bonds). T-Bills have terms of less than one year and are sold at a discount based on the interest rate being paid. You can purchase a $1,000 one-year T-bill earning 4% interest for $960 and when you redeem or cash in the bond, you will receive $1,000.
US T-bonds have terms greater than one year to a maximum of 30 years. Sold at face value, the owner receives interest payments during the term of the bond, usually twice a year. The 10-year T-Bond is considered the best barometer to follow for mortgage rates.
The Federal government needs to borrow money for operations and over time has accumulated to the point that the total current US Federal debt is $39 Trillion and growing at the rate of $53,000 every second. As of April 9, 2026, this number represents $357.069 per tax paying citizen. Check out USdebtclock.org for an update.
Some of the proceeds from the sale of current T-Bills and T-Bonds are used to pay holders of maturing current bills and bonds (think of it as a person using their VISA credit card to pay their Mastercard bill). Taking on debt to make debt payments. Not a good idea.
The entities that purchase government debt do so with the understanding that US government securities are risk free and are guaranteed to get their money back with interest. Interest at a rate sufficient to offset the buyer’s loss of buying power due to inflation over the term of the obligation. This is why the rate of inflation impacts mortgage rates and other long-term interest rates most significantly.
Regardless of your politics, accept that long term interest rates will not go down until the inflation rate goes down and vice versa. As the rate of inflation goes, so goes long term rates like mortgages and vehicle loans.