What's the best day of the week to lock a mortgage rate, you ask? It depends on your preference for risk.
According to data compiled from MBSQuoteline, a provider of real-time mortgage market pricing, mortgage rates are most stable on Mondays, making that day the easiest on which to lock a low rate.
By contrast, rates are most skittish on Wednesdays, meaning that mid-week is a time when rates could drop while you shop -- or they could spike, costing you some cash.
Locking your rate at the precise right time can mean the difference between saving big bucks and paying higher costs. But, before you lock, you'll want to know how mortgage rates work.
A brief understanding of mortgage markets is the first step toward making a sound mortgage rate decision.
Shopping for a mortgage rate can be difficult -- especially because it's not always clear where mortgage rates come from, or how they're made.
The good news is that mortgage rates are simple to understand once you understand a few basic facts.
In this context, we see that mortgage rates -- just like stocks -- are driven by "the market".
When demand for mortgage-backed securities is high, MBS prices rise; and, when demand for mortgage-backed securities is low, MBS prices fall.
The only confusing part to remember about mortgage rates is that the move in the opposite direction of mortgage bond prices.
When MBS prices rise, mortgage rates drop; and when MBS prices drop, mortgage rates rise.
So, what makes MBS prices change? A lot of things -- same as with stocks. A strong economic report will affect MBS prices; as will a weak one. A rise in oil prices will affect MBS prices, and so will a drop.
MBS prices can be affected by the policies of a government halfway around the globe (see: China); and, by the policies of the government here at home.
MBS prices -- and, by extension, mortgage rates -- are always on the move. This is why it's recommend to do your mortgage rate shopping all in one day, when possible.
If you wait to lock a mortgage rate, the rate you want could be gone.
When you're shopping for a mortgage and find the rate which meets your needs, it's time to make a "lock"; a commitment to your lender that you're amenable to the rate offered.
At this point, you're entering a contract, of sorts. You agree to accept the rate offered, and the lender agrees to honor that rate for a pre-specified number of days.
The standard mortgage rate lock is good for 30 days. This means that when you lock a loan, the lender will agree to honor your locked rate for a period of 30 days no matter what.
If the mortgage market suddenly worsens, for example, and mortgage rates jump 1/2 percentage point, because of your rate lock, your lender is obligated to honor your original quoted rate.
No matter what.
Now, not all loans will be closed in 30 days. When you're buying a home, for example, it can take 60 days or longer to close. Thankfully, rate locks are available for time frames longer than just 30 days.
Mortgage rates can be locked in 15-day increments, all the way up to 90 days. Beyond 90 days, the increment shifts to 30-day periods, up to 360 days total.
That said, you may not want to make a 360-day lock, even if you're buying new construction not set to deliver for another year.
This is because the longer your rate lock, the higher your mortgage rate will be.
The reason why mortgage rates increase as your rate lock duration increases is that lenders are absolutely committed to giving you your locked rate at closing, but the future is always uncertain.
The farther into the future you want your lender to commit to a specific interest rate, the more they're going to charge you for it -- it's a high-risk proposition, after all.
In general, mortgage rates increase 12.5 basis points (0.125%) for every 15 days you add to your rate lock, up to 90 days. Beyond 90 days, expect to pay higher rates and a non-refundable, upfront fee.
This fee is why very few people execute rate locks for longer than 90 days. The fee can be as high as 1 percent of your borrowed amount and you never get it back once it's paid.
Some mortgage lenders will not charge a premium for locking a rate for 60 days so be sure to get at least two quotes from competing banks. Policies vary from lender-to-lender.
So, now that we know how mortgage rates work, which days are the best for locking them? To find out, we enlisted the help of MBSQuoteline, a publisher of real-time MBS pricing.
First, we looked at four years of data, from August 2011-2015, and sorted closing market prices by days of the week.
Next, we looked at the change in pricing between successive days to assess daily volatility.
Then, finally, we removed the two largest daily movements for each weekday during the 4-year period to reduce the outlier effect.
What we found is that Monday is the "calmest" day in mortgages and Wednesday is the liveliest.
In general, 25 basis points equates to a 0.125 percentage point change in mortgage rates.
This means that, on average, we should expect mortgage rates to move ±1/8 percentage point on Wednesdays and Fridays, and not at all on Mondays.
It's no accident that Wednesdays and Fridays are most volatile, either. These two days coincide with some of the most important news to affect MBS pricing and the markets.
The Federal Reserve adjourns from its FOMC meetings on every sixth Wednesday, for example, and when the Fed meets, mortgage rates can change in a hurry.
Additionally, the Bureau of Labor Statistics releases its Non-Farm Payrolls report on the first Friday of each month. The jobs report also has an outsized effect on mortgage-backed securities, which can lead to volatile Fridays.
As for Mondays, there's not much news released to start the week, which may be why Mondays are the calmest of all days for mortgage rates.
Knowing, then, how mortgage rates tend to change, if you're the risky type who wants to chase the lowest rate possible, consider waiting until a Wednesday or Friday to lock something in. Your chance of mortgage rates dropping on these two days are the greatest.
On the flip side, rates could also rise on those days so be sure to understand your risks.
Mortgage rates change daily, and, on some days, they tend to change more than others. That said, each day you're "floating" poses a risk to your finances. It's often better to be locked.
Take a look at today's real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.
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.
Barry L. Systems Analyst
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