What’s Driving Mortgage Rates Today?
Today is the lightest day of the week for mortgage-related news. Even Fed governors have taken time off from making speeches. Stocks are slightly lower across the board and ten-year Treasury yields are down to 4.46 percent.
Some believe this is due to concern about the upcoming elections in France, which could destabilise Europe and, to a lesser extent, US financial markets.
Candidate Marine Le Len’s platform — based on anti-immigration, dumping the Euro and combating globalization frightens investors and has in part caused the Euro to fall.
This ius also good of US interest rates; foreign flight to our Treasuries causes their prices to increase and yields (rates) to drop.
Today’s Mortgage Rates
** FHA APRs include government-mandated mortgage insurance premiums (MIP).
These rates are averages, and your rate could be lower.
Tomorrow brings the first report of any important to those of us who are floating mortgage rates. The National Association of Realtors (NAR) will announce Existing Home Sales for February.
Investing experts predict that 5.45 million pre-owneds sold last month, down from January’s 5.69 million. If there are any large deviations from these estimates, they could move mortgage rates. A larger decline than expected could move rates lower, continuing the nice trend we’ve established so fare this week.
Rate Lock Recommendation
This is a good time to take advantage of the recent declines in mortgage pricing. But remember, early lockins do come at a price — higher fees or mortgage rates.
I recommend locking for anyone closing in the next 30 days, and even longer if your lender will do it for no extra charge.
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%
Your 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.