Mortgage rates¬†could be headed for wild ride in February.
The Federal Reserve meets for the first time in 2017, a crucial Non-Farm Payrolls report is released, and it's the first full month in which a new presidential administration is in place.
February could set the tone for 2017 mortgage rates, perhaps even more so than January.
Optimism has reigned of late. Unemployment is down, worker wages are rising, and the stock market is on a record run, hitting 20,000 for the first time ever.
Markets will be watching to see if February carries the momentum forward.
Higher wages and lower unemployment lead to inflation, which is bad for rates. Plus, the Fed could move up its time table for another rate hike because of strong economic data.
Fortunately, mortgage rates are still low, and off from recent highs.
Rates ended December near a 3-year¬†peak, but shifted lower in January. February could be another "cooling off" month after a historic run upward since the election.
This month should remain a fantastic time to be shopping for a mortgage rate.Click to see today's rates (Feb 26th, 2017)
The average conventional¬†30-year fixed rate mortgage started February at 4.19%, according to Freddie Mac's Primary Mortgage Market Survey (PMMS).
The 15-year was clocked at 3.40%, and the 5-year adjustable rate mortgage -- which will become more popular as rates rise -- dropped to 3.20%.
The Freddie Mac rates are available to "prime" borrowers paying about 0.5 discount points at closing.
A "prime" borrower is one with excellent credit, a large downpayment, and adequate income, and one who is applying for a mortgage amount¬†within¬†conventional loan limits.
That's why average rates are terrific for¬†market¬†trend analysis, but not¬†very useful to¬†consumers looking for their¬†rate. There are a number of reasons for this.
First, Freddie Mac compiles quotes from more than 100 lenders. Some quotes are lower, some higher; but each response is blended with all the others.
As a consumer, you make a final choice on¬†only¬†one rate. But that is actually advantageous. You can "poll" multiple lenders -- by requesting written quotes from three or four -- and choose the best offer. You're not stuck with an average.
Second, you may not want to pay discount points. Instead, you could choose to pay more¬†for a lower rate, pay no points at all, or even request a no-closing-cost mortgage.
Third, you might¬†not fit the profile of the "prime" borrower. You¬†have little to no¬†down payment saved, or have a recovering credit score. But less-than-prime qualification factors may work to your¬†advantage, too.
Namely, you¬†may be eligible for a government-sponsored loan program.
Freddie Mac's interest rate survey¬†applies to conforming loans and conventional mortgage rates only. Government-backed FHA and VA mortgage rates are not surveyed as part of¬†the report; nor are mortgage rates for USDA loans.
Rates for these other loan types are even lower.
All of this makes it¬†easier for today's refinancing homeowners to¬†qualify for streamlined loans such as the¬†FHA¬†Streamline Refinance,¬†the VA Streamline Refinance, and the USDA Streamline Refinance.
Streamlined refinance loans can close in as few as 30 days because of reduced paperwork requirements and no appraisal in most cases. These refinances are simpler for banks to underwrite and approve.Click to see today's rates (Feb 26th, 2017)
Today's mortgage rates are hovering; in the low 4s, and many mortgage rates predictions¬†have them unchanged-to-higher through 2017.
It¬†should be noted, though, that although mortgage rates are still historically low, they may not stay that way for long. Mortgage rates change quickly with the economy, and with shifts in market sentiment.
Mortgage-backed securities (MBS) -- the Wall Street asset upon which mortgage rates are "made" -- have been erratic of late, which has¬†rates on shaky ground.
MBS pricing is currently responding to influences on the economy, including the Federal Reserve's monetary policy, the jobs market, and forecasts for the new administration's policies.
Thirty-year mortgage rates found a resting point at around 3.5% last summer, and, if not for the election, they may have stayed there.
Instead, they increased dramatically hours after now-President Donald Trump clinched the victory.¬†The question is this: will mortgage rates continue higher now that the new administration is in place?
If not for a new presidential administration, mortgage rates would be much more predictable.
The¬†typical reports would guide predictions: February's Non-Farm Payrolls and the Federal Open Market Committee (FOMC) meeting announcement would be the dominant reports to watch this month.
But the "wild card" for mortgage rates is a new president, sworn in on January 20.
February will be the first full month in office for President Donald Trump.
Since his election win, the stock market has been on an upward run. And so have mortgage rates.
The administration plans $1 trillion in infrastructure spending and non-trivial tax cuts. Markets perceived these plans as inflationary.
Interest rates almost always rise in a high-inflation environment. Investors buy mortgage-backed securities that come with certain rates of return. The interest rates investors receive are directly connected to your mortgage rate.
In short, mortgage rates need to be considerably higher than the rate of inflation. Prices in the economy are rising about 1.7% per year according to the Consumer Price Index published by the Bureau of Labor Statistics.
If inflation hits 4%, as it did in 2007, you will no longer find 4% mortgage rates at your local lender or online. Ten years ago, the 30-year mortgage rate averaged 6.34%.
All eyes will be watching the Trump administration for further insight on spending plans. More important, whether a proposal could realistically make it through Congress.
If the new administration presents a viable spending package, markets could "price in" rising inflation to the mortgage rate market, and rates could rise.Click to see today's rates (Feb 26th, 2017)
The Fed statement, released at 2:00 PM ET on February 1 could provide insight into its plans to hike or hold rates¬†this year.
In December, the Fed voted to raise its benchmark rate near 0.50% in a unanimous decision.
But the hike itself didn't affect mortgage rates. The market had already factored into rates the coming hike.
It was the Fed's prediction of three rate hikes in 2017 that sent rates skyward.
Four times per year, the Fed releases its projections for future Fed Funds Rate increases.
In September, it had predicted two hikes this year. In December, it called for an additional hike, totally¬†three-quarters of one percent in increases¬†to the Fed Funds rate by the end of 2017.
That put Wall Street on notice, and mortgage rates rose to 4.32%, on average, by December's end.
The Fed¬†doesn't control mortgage rates¬†but its rhetoric drives markets.
That's why mortgage shoppers should watch the Federal Open Market Committee (FOMC) meeting beginning January 31.
The Fed will likely not raise rates so soon after the last hike. Most analysts don't expect another increase until June. But what it says about the economy could push rates higher -- or lower.
Watch for inflation-cautious remarks from the group.
More than 14 million jobs have been added in the economy since 2010¬†and the unemployment rate has dropped near 5.0 percent.
Wages are creeping up, causing wage-push inflation in the economy.
Companies increase wages to attract and retain workers. They need to: the economy is reaching full employment and workers are harder to find each month.
To pay more, though, firms charge more for goods and services. Prices rise, and the dollar buys less -- the very definition of inflation.
Mortgage rates rise during inflationary periods.¬†That's why the upcoming Non-Farm Payrolls¬†report has relevance to today's mortgage rate shopper -- the report may give convincing¬†reason for mortgage rates to jump in the coming weeks.
Now could be the right time to lock: before markets have more time to build in upcoming data from the Jobs Report and Fed Meeting.Click to see today's rates (Feb 26th, 2017)
Mortgage programs today come with low rates in the 4s.
But some mortgage programs come with even lower rates than that.
Ellie Mae, a mortgage software firm which processes 3.7 million applications per year, gathers data on loans¬†run through its system monthly. Its¬†December Origination Insight Report was telling.
Government-backed programs, falsely perceived to have worse terms, actually carried the best mortgage rates.
The following average rates were reported by¬†Ellie Mae.
Conventional loans are the go-to program for most home buyers with large down payments, good credit, and significant assets left after closing.
But Fannie Mae and Freddie Mac -- the two major mortgage rule-making agencies in the U.S.¬†-- have rolled out new programs for a wider array of buyers. A newer option donned HomeReady‚ĄĘ requires just 3% down and is available to those with modest incomes.
The government-backed VA home loan is even easier to qualify for. It comes with lenient credit requirements and is available to home buyers who have served in the U.S. military. There is no down payment necessary, and no monthly mortgage insurance charged.
FHA loans are extremely popular, used by about 40% of first-time home buyers in their 20s and 30s. Flexible lending requirements allow new graduates to obtain an approval just after starting their careers.
A loan program not covered by Ellie Mae's report is the USDA home loan, otherwise known as the Rural Development (RD) Guaranteed Housing Loan or "Section 502" loan.
It supports homeownership in less dense areas in which incomes often lag those within cities. There's no downpayment required, and minimum credit scores are low.
USDA mortgage rates are about as low as VA ones, making them one of the most affordable home buying options on the market.
For rural and suburban home buyers, there are few better options than the USDA loan.
Mortgage rates for these programs are still¬†low, and could go lower in 2017.Click to see today's rates (Feb 26th, 2017)
The next four weeks hold no shortage of mortgage-rate-moving news. Most notably, watch for the Non-Farm Payrolls release (a.k.a Jobs Report) on February 3.
The most important rate-affecting events for the month are as follows:
February could be another volatile one for mortgage rates. It's President Donald Trump's first full month in office. Announcements on economic policy could sway mortgage rates for better or worse.
Lock in now to avoid potentially negative mortgage rate fluctuations this month.
Mortgage rates are currently just above 4 percent. Home buyers have excellent purchasing power at today's rates; and refinancing households can¬†save more cash¬†with a refinance.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Feb 26th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)