What’s driving current mortgage rates?
Bonds and mortgage-backed securities (MBS) appear to have broken out of the narrow rut they have occupied for the last few weeks and are moving. Unfortunately, their prices have been taking a beating and mortgage rates today are moving up. In addition, the new year has brought an increase in mortgage applications; more demand can mean higher prices.
We have no economic reports this morning to influence lenders. However, there is a Treasury auction of 10-year Notes, and that should set the tone for the rest of the week. Higher prices than expected should cut rates, but if demand is soft, mortgage interest rates could increase.Verify your new rate (Dec 13th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.167||4.178||+0.04%|
|Conventional 15 yr Fixed||3.75||3.769||+0.08%|
|Conventional 5 yr ARM||3.813||3.985||+0.02%|
|30 year fixed FHA||3.958||4.96||+0.04%|
|15 year fixed FHA||3.375||4.324||+0.13%|
|5 year ARM FHA||3.625||4.492||+0.02%|
|30 year fixed VA||4.0||4.188||+0.33%|
|15 year fixed VA||3.5||3.811||+0.06%|
|5 year ARM VA||3.813||3.739||Unchanged|
(Note that FHA APRs include required mortgage insurance.)
Financial data that affect today’s mortgage rates
Today’s indicators are mixed but still point to rising rates.
- Major stock indexes opened slightly lower (good for mortgage rates)
- Gold prices rose $5 an ounce to $1,313. (That is bad 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 $62 barrel (that’s bad for rates because higher energy prices play a large role in creating inflation — but $61 is still pretty high in terms of recent history.)
- The yield on ten-year Treasuries increased by 5 basis points (after a 4 point increase yesterday (5/100th of 1 percent) to 2.58 percent (bad for interest rates, because mortgage rates tend to follow Treasuries).
- CNNMoney’s Fear & Greed Index dropped 4 points to a still “greedy” 72. That’s an improvement for rates because in this case, greed is NOT 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 is extremely slow for economic reporting that involves mortgage rates. There is nothing of any importance until Thursday when we get the weekly unemployment numbers, and Friday, when we get the CPI (Consumer Price Index) for December.
For the other days, mortgage interest rates may depend more on global economic and political events, as well as random Twitter emanations from the White House. On Wednesday, we do get a Treasury auction of ten-year Notes, followed by a 30-year auction on Thursday. These can be important because demand (much of it from overseas) for these safe vehicles keeps bond prices high and rates low. Conversely, soft demand causes bond prices to drop, and yields (rates) to rise.
- Wednesday: Treasury auction of 10-year Notes
- Thursday: Treasury auction of 30-year Notes
- Friday: Consumer Price Index (CPI), expected to increase by .1 percent. Higher is bad for rates, a lower change or negative change would be good.
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 need to hit a certain rate to qualify or make a refinance work, and you can get that rate today, I recommend grabbing it.
- 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 (Dec 13th, 2018)