What’s driving current mortgage rates?
Mortgage rates today are mostly unchanged. Although expectations of one more interest rate increase by the Fed appears to have pushed the shorter term 5/1 ARM a little higher.
It’s important to examine the “spread” between 30-year fixed loans and hybrid ARMs, with shorter fixed-rate periods to see if they really represent a bargain. Today, they don’t.
Thanksgiving is over, but many people have the day off, and there are no major financial reports due out this morning.Verify your new rate (Dec 10th, 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||3.750||3.962||+0.13%|
|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 indicators today point to rising rates. However, lenders do price conservatively heading into a weekend, and this may be temporary.
- Major stock indexes are up slightly (bad for rates)
- Gold prices fell $3 an ounce to $1,288 (That is not good for mortgage rates. In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower).
- Oil rose $1 to $59 a barrel (bad for rates, because higher energy prices play a large role in creating inflation. And they have risen almost $10 in a fairly short time)
- The yield on ten-year Treasuries rose two basis points (2/100th of 1 percent) from yesterday’s opening rate, to 2.34 percent (bad for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index rose one point to 55. That’s a neutral reading, but the direction it’s moving is not good for interest rates. “Fearful” investors push rates down as they leave the stock market and move into bonds, while “greedy” investors do the opposite. That causes rates to rise.
Mortgage rates today remain very favorable for anyone considering homeownership. Residential financing is still affordable.
Thanksgiving takes up the rest of the spotlight this week. Wednesday is the busy day, combining the reports of several days.
Rate lock recommendation
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 (Dec 10th, 2018)