No Need to Bail on Mortgage Funds

This article originally appeared in The Save Safe Plan newsletter. For more information on this product, please click here.

While interest rates steadily plummeted over the past three years, homeowners have rejoiced. Indeed, many seem to have exuberantly taken up refinancing their mortgages as an amusing new hobby. (You know who you are.)

But while today's super-low mortgage rates (the national average is 5.6%, according to BankRate.com) are a boon to homeowners, investors in mortgage-backed securities have little to cheer.

Typically, lower interest rates benefit mortgage funds. As mortgage rates drop in concert with interest rates, the mortgages the funds already hold pay a higher yield than the newer mortgages. But mortgage funds -- usually a better bet than Treasuries -- posted a measly 2.1% in the first six months this year, while long-term Treasury funds have fared more than twice as well, returning an average 5.7%, according to Morningstar. ...