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Posted 03/01/2017

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Mortgage Rates Today, March 1, 2017, Plus Lock Recommendations

MORTGAGE RATES TODAY

What's Driving Mortgage Rates Today?

This morning's important Institute of Supply Management (ISM) manufacturing index came in with a reading of 57. blowing away expectations and causing a sharp spike in mortgage rates. Analysts had anticipated February's reading to duplicate January's level of 56.

The ISM index measures confidence at the manufacturing level of the economy. More confidence in the future fuels economic heat -- leading to rising mortgage rates today.

Unexpected Optimism and "Extreme Greed" Lead To Higher Rates

And that's an important thing to keep in mind about interest rates and financial markets in general. Anytime something is expected, it's already reflected in the current price of the stock or bond in question. It's only when expectations differ from reality that prices and interest rates change.

In this case, unexpected optimism of manufacturers has spiked concerns about inflation, leading to falling prices in the bond and mortgage-backed securities markets, causing interest rates to increase.

In addition, following President Trump's speech last night, CNN Money's Fear and Greed Index reversed its course, swinging from "Greed" at 66 to "Extreme Greed" with a reading of 80. That also indicates increasing economic activity, leading to inflation fears for tomorrow and higher mortgage rates today.

mortgage rates today
** FHA APRs include government-mandated mortgage insurance premiums (MIP). 

Tomorrow

Tomorrow brings us the Weekly Jobless Claims report. Unemployment data is always considered pertinent to mortgage rates today, but this is just a weekly report. Its effect is minuscule compared to the highly-important monthly report due on March 10th.

Expect rates to be driven largely by stock prices -- prices up, rates up. Prices down, rates down.

Rate Lock Recommendation

Today's volatile economic climate may prompt the risk-averse to lock their loans now. Even those closing after 30 days might consider locking if they can get a 45 or 60-day lock without extra costs. However, most lenders charge significantly more for a longer lock.  You need to decide if "setting and forgetting" your rate is worth the added fees.

Note that this is what I would do if I had a mortgage in process today. Your own goals and tolerance for risk may differ. 

What Causes Rates To Rise And Fall?

Mortgage interest rates depend on a great deal on the expectations of investors. Good economic news tends to be bad for interest rates, because an active economy raises concerns about inflation. Inflation causes fixed-income investments like bonds to lose value, and that causes their yields (another way of saying interest rates) to increase.

For example, suppose that two years ago, you bought a $1,000 bond paying five percent interest ($50) each year. (This is called its “coupon rate.") That’s a pretty good rate today, so lots of investors want to buy it from you. You sell your $1,000 bond for $1,200.

When Rates Fall

The buyer gets the same $50 a year in interest that you were getting. However, because he paid more for the bond, his interest rate is not five percent.

  • Your interest rate: $50 annual interest / $1,000 = 5.0%
  • Your buyer’s interest rate: $50 annual interest / $1,200 = 4.2%

The buyer gets an interest rate, or yield, of only 4.2 percent. And that’s why, when demand for bonds increases and bond prices go up, interest rates go down.

When Rates Rise

However, when the economy heats up, the potential for inflation makes bonds less appealing. With fewer people wanting to buy bonds, their prices decrease, and then interest rates go up.

Imagine that you have your $1,000 bond, but you can't sell it for $1,000, because unemployment has dropped and stock prices are soaring. You end up getting $700. The buyer gets the same $50 a year in interest, but the yield looks like this:

  • $50 annual interest / $700 = 7.1% The buyer’s interest rate is now slightly more than seven percent.
Click to see today's rates (Jul 21st, 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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