What’s driving current mortgage rates?
Mortgage rates today are up sharply, not totally unexpected given yesterday’s indicators. And the fact that yesterday afternoon’s release of the minutes from the last Federal Reserve meeting showed members ready to pile on the rate increases.
The Federal Open Market Committee (FOMC), which approved rate changes, reported that it has revised its economic projections upward from the previous meeting in December.
And this morning’s Weekly Unemployment Claims report showed just 222,000 new claims, significantly fewer than the 230,000 expected by analysts. Less unemployment is bad for mortgage rates because it indicates the potential for upward pressure on wages.Verify your new rate (Dec 13th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.667||4.678||+0.04%|
|Conventional 15 yr Fixed||4.208||4.227||+0.13%|
|Conventional 5 yr ARM||4.063||4.348||+0.02%|
|30 year fixed FHA||4.5||5.507||+0.09%|
|15 year fixed FHA||3.75||4.701||+0.06%|
|5 year ARM FHA||3.875||4.867||-0.05%|
|30 year fixed VA||4.542||4.736||+0.09%|
|15 year fixed VA||3.813||4.126||+0.06%|
|5 year ARM VA||4.375||4.238||+0.05%|
Financial data that affect today’s mortgage rates
Today’s early data are unfavorable for mortgage rates.
- Major stock indexes opened higher this morning (bad for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices fell for the third straight day, this time by $2 an ounce to $1,331. (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 remained at $62 a barrel (neutral for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries increased by 1 basis point (1 1/100th of 1 percent) 2.90 percent. This is bad for mortgage rates because they tend to follow Treasuries
- CNNMoney’s Fear & Greed Index rose 1 point to a reading of 18 (out of a possible 100). That’s considered the “extreme fear” range. Moving into a less fearful state is usually bad for rates. “Fearful” investors generally push bond prices up (and interest rates down) as they leave the stock market and move into bonds, while “greedy” investors do the opposite. However, that won’t be the case if the reason for the fear is potential inflation.
This week was shortened because of Presidents Day and is extremely light on economic reporting. We get nothing of real importance until Wednesday.
- Wednesday: Existing Home Sales from the National Association of Realtors, Minutes from the Fed
- Thursday: Weekly Unemployment Claims
In the absence of formal financial releases, investors and borrowers will have to take their cues from financial data (like that listed above), global political and economic news, and perhaps the occasional Twitter storm from the White House.
Rate lock recommendation
In general, pricing for a 30-day lock is the standard most lenders will (should) quote you. The 15-day option should get you a discount, and locks over 30 days usually cost more.
In a rising rate environment, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible. However, the longer you lock, the higher your upfront costs. If you are weeks away from closing on your mortgage, that’s something to consider. On the flip side, if a higher rate would wipe out your mortgage approval, you’ll probably want to lock in even if it costs more.
If you’re still floating, stay in close contact with your lender, and keep an eye on markets.
- 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. This illustration from Mortgage News Daily shows how rising stocks tend to pull interest rates with them.
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 now 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)