Mortgage rates today, December 20, plus lock recommendations

Gina Pogol
Gina PogolThe Mortgage Reports Contributor

What’s driving current mortgage rates?

Mortgage rates today are higher in many instances. We did get a clue about this probability yesterday when the yield for 10-year Treasuries rose so suddenly. After repeatedly flirting with yields approaching 2.4 percent, a major psychological barrier in markets, rates did what analysts (including this one) had been fearing for weeks.

Today’s most prominent report, the National Association of Realtors existing home sales for November, was not the main driving force for interest rate movements. However, the news was bad for mortgage rates — for the third straight month, sales increased and at the fastest pace in almost 11 years.

It’s bad when home sales both push demand for mortgages higher and also indicate economic heat. Economic improvement that happens quickly creates fears of inflation, which causes investors to demand higher bond yields (rates), and more people seeking mortgages pushes lender profit margins higher as well.

Verify your new rate (Oct 18th, 2018)

Mortgage rates today

Program Rate APR* Change
Conventional 30 yr Fixed 3.875 3.875 +0.13%
Conventional 15 yr Fixed 3.250 3.250 Unchanged
Conventional 5 yr ARM 3.500 3.874 Unchanged
30 year fixed FHA 3.500 4.486 +0.13%
15 year fixed FHA 3.250 4.198 Unchanged
5 year ARM FHA 3.500 4.443 Unchanged
30 year fixed VA 3.625 3.798 +0.13%
15 year fixed VA 3.375 3.685 Unchanged
5 year ARM VA 3.625 3.671 Unchanged

Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Financial data that affect today’s mortgage rates

This morning’s financial data are mixed but the 10-year Treasury stands out as a major cautionary change.

  • Major stock indexes opened slightly lower slightly good for mortgage rates)
  • Gold prices rose $5 an ounce to $1,268. (That is 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 edged upward to $58 a barrel (slightly bad for mortgage interest rates. Higher energy prices play a large role in creating inflation.)
  • The yield on ten-year Treasuries spiked another 4 basis points (4/100ths of 1 percent — huge after yesterday’s 8 point leap) to 2.49 percent! (terrible for rates, because mortgage rates tend to follow Treasuries and this is a huge movement).
  • CNNMoney’s Fear & Greed Index fell 3 points to 73, still well into “greedy” territory but at least the movement is in the right direction. This is one case in which greed isn’t good. “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.

This Week

  • Thursday, we get the Weekly Unemployment Claims and Leading Economic Indicators
  • Friday is the big day — the one to pay serious attention to if you’re floating a rate — releases include Durable Goods Orders, Personal Income, Consumer Spending, Inflation, New Home Sales, Consumer Spending and Consumer Sentiment — all potential indicators of inflation (or lack of)

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.

The spike in the Ten-year Treasury index concerns me a great deal. It points to mortgage rates increases, at least in the 30-year fixed market. I’d lock if I had anything fixed closing soon.

  • 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

Video: More about mortgage rates

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 (Oct 18th, 2018)