What’s driving current mortgage rates?
Mortgage rates today remain largely unchanged. There has not been enough major economic news to break them out of the narrow range in which mortgage-backed securities (MBS) are trading. But that’s good for borrowers, taking some of the uncertainty out of mortgage borrowing.
We kick off this holiday week with The Conference Board’s Leading Economic Indicators, a collection of data that attempt to predict economic health in the near term.
Last month’s level dropped 0.2 percent. An improvement could increase mortgage rates slightly, but this report is not widely considered critical.Verify your new rate (Sep 24th, 2018)
Today’s mortgage rates
|Conventional 30 yr Fixed||3.750||3.750||Unchanged|
|Conventional 15 yr Fixed||3.250||3.250||Unchanged|
|Conventional 5 yr ARM||3.375||3.830||Unchanged|
|30 year fixed FHA||3.375||4.360||Unchanged|
|15 year fixed FHA||3.125||4.072||Unchanged|
|5 year ARM FHA||3.250||4.345||Unchanged|
|30 year fixed VA||3.500||3.672||Unchanged|
|15 year fixed VA||3.250||3.559||Unchanged|
|5 year ARM VA||3.500||3.626||Unchanged|
Financial data that affect today’s mortgage rates
Most of these early morning data are neutral-to-slightly bad for mortgage rates, not expecting to move mortgage rates much.
- Major stock indexes are mixed early this morning. Pretty much neutral for rates so far.
- Gold prices remained at $1,287 (neutral for rates. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower).
- Oil rose $1 to$56 (bad for rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries increased one basis point (1/100th of 1 percent) to 2.36 percent (bad for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index fell 6 points to a neutral 44. While technically neutral, the direction of movement, toward a more fearful state is good for rates.
Mortgage rates today remain very favorable for anyone considering homeownership. Residential financing is still affordable.
- Tuesday: Existing Home Sales from the National Association of Realtors
- Wednesday: Weekly Jobless Claims, Durable Goods Orders, Consumer Sentiment, and the Federal Open Market Committee minutes.
Thanksgiving takes up the rest of the spotlight. Wednesday is the busy day, combining the reports of several days. We will break these out in more detail tomorrow.
Rate lock recommendation
Mortgage rates are barely moving these days, so it’s fairly safe to stretch a lock if it makes sense. If you are closing in, say, 16 days, you might want to wait a day or two and get a 15-day rather than a more-expensive 30-day lock. If you’re closing in 32 days, it’s probably worth holding out for a 30-day timeline.
In general, 30-day is the standard price most lenders will (should) quote you. The 15-day option should get you a discount, and locks over 30 days usually cost more.
If you want to “set it and forget it,” though, current mortgage rates are attractive enough to make that an okay move.
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- LOCK if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
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. Interest rates and yields are not mysterious. You calculate them with simple math.Verify your new rate (Sep 24th, 2018)