What’s driving current mortgage rates?
Mortgage rates today opened nice and low after a tumble yesterday afternoon that no one saw coming. The price of mortgage-backed securities (MBS), which is what investors are willing to pay for mortgages and plays a huge role in determining mortgage rates, rose crazily.
Industry analysts at Mortgage News Daily are still shaking their heads after the fact, stating, “There was nothing big and meaningful on the event calendar, and even in hindsight, we didn’t see any big news or any big piece of data that motivated the trading response.”
But it’s lucky for anyone floating a rate today.
In other news, Pending Home Sales for February increased by 3.1 percent, beating expert predictions by .1 percent. That’s not good news for mortgage rates because it indicates economic improvement (which then causes prices and rates to rise). It also creates more demand for home loans, which allows lenders to increase pricing and profits. But it’s also one of the less-important reports.Verify your new rate (Oct 14th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.58||4.591||-0.04%|
|Conventional 15 yr Fixed||4.083||4.102||-0.08%|
|Conventional 5 yr ARM||4.063||4.599||-0.02%|
|30 year fixed FHA||4.417||5.423||-0.08%|
|15 year fixed FHA||3.625||4.575||Unchanged|
|5 year ARM FHA||3.813||4.941||-0.05%|
|30 year fixed VA||4.5||4.694||Unchanged|
|15 year fixed VA||3.75||4.063||-0.06%|
|5 year ARM VA||4.0||4.203||-0.05%|
Financial data affecting today’s mortgage rates
Today’s early data are mixed and mostly offset each other as we wait for the most important trading day this week, Thursday.
- Major stock indexes opened mixed and flat (neutral for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow)
- Gold prices fell $12 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 prices pulled back about $1 higher to $65 a barrel (good for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell 7 basis points (7/100th of 1 percent) to 2.76 percent.This is the lowest it’s been in some time and very good for mortgage rates because they tend to follow Treasuries
- CNNMoney’s Fear & Greed Index dropped 3 points to a reading of 6 (out of a possible 100). That’s about as fearful it gets. Moving into a more fearful state is usually good 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, if what investors ear most is inflation, look out.
This week brings some pretty heavy financial reporting.
- Monday: Nothing
- Tuesday: Case-Shiller Home Price Index for January (previous month increased 6.3%) and the Consumer Confidence Index for March (expected to increase from February’s 130.8 to 131.3)
- Wednesday: Pending Home Sales for February (previous month fell by 4.7%)
- Thursday: Weekly Unemployment (forecast is 330,000 new claims for benefits), Personal Income, Spending, and Inflation for February, (expect increases of .4%. ,2% and .2%) and Consumer Sentiment for March (predicted to remain at 102)
- Friday: Nothing (Good Friday)
Rate lock recommendation
Mortgage rates today are in a very good place if you are closing on a home loan soon. We have not seen 10-year Treasuries break below the 2.80 percent barrier since early February. It is a good time to lock if you’re not inclined to gamble on tomorrow’s highly-important releases going your way. I would personally lock if I had a rate floating today.
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.
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 (Oct 14th, 2018)