What’s driving current mortgage rates?
Mortgage rates today are nearly unchanged from Friday’s. We received some important data, but the actual figures did not vary much from expectations. Consumer Spending increased by .4 percent, as anticipated by analysts, Personal Income rose by .3 percent, slightly less than expected, and the Core Inflation Rate hit 2 percent, the rate the Fed has targeted for healthy economic expansion.Rates Below Are Averages. Get Your Personalized Rates Here. (Sep 21st, 2018)
|Conventional 30 yr Fixed||4.75||4.761||Unchanged|
|Conventional 15 yr Fixed||4.292||4.311||Unchanged|
|Conventional 5 yr ARM||4.313||4.759||Unchanged|
|30 year fixed FHA||4.583||5.592||Unchanged|
|15 year fixed FHA||3.813||4.764||+0.06%|
|5 year ARM FHA||3.875||5.093||Unchanged|
|30 year fixed VA||4.667||4.863||Unchanged|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.0||4.338||Unchanged|
Financial data affecting today’s mortgage rates
Rates may be more affected by fears surrounding the implosion of the Iran arms deal than today’s economic releases — even though these are some of the more important pieces of data we get each month. In addition, top economic officials are heading to China to hopefully avert a trade war.
Destabilization in the Middle East could cause oil prices and rates to rise. Averting a trade war could be good for the economy and cause rates to rise. The reverse of both of those possibilities is also true.
- Major stock indexes opened higher this morning (bad for mortgage rates)
- Gold prices fell $11 to $1,312 an ounce. (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 held steady at $67 a barrel (neutral for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries stayed at 2.96 percent. This is neutral, as mortgage rates tend to move with Treasury yields.
- CNNMoney’s Fear & Greed Index rose 6 points to 45 (out of a possible 100). That’s in the “neutral” range, and in the last week, we have moved from “extreme fear” to “neutral.” 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.
This week has some big and important reporting. Right out the gate on Monday and all the way through. As predictions come in, we will update this section. In general, when the economy is worse than predicted, rates drop, and when it’s better than expected, rates rise.
- Monday: Consumer Spending (previous .4 percent increase), Personal Income (previous increase .2 percent) and the Core Inflation Rate (previous increase .2 percent)
- Tuesday: ISM (Institute for Supply Management) Manufacturing Index for April (previous level 59.3)
- Wednesday: ADP Employment Report (previously came in at 241,000 new payrolls; many think it foreshadows Friday’s Employment report), and the Federal Open Market Committee issues its statement about the economy that afternoon
- Thursday: Weekly Unemployment Report, First Quarter Productivity (previous productivity showed zero increase), ISM Non-manufacturing Index for April (previous was 58.8), and Factory Orders for March (the previous increase was .2 percent)
- Friday: The biggest day of the month — Nonfarm Payrolls (previously 103,000 jobs added), Average Hourly Earnings (previously increased .3 percent), and the Unemployment Rate (previously at 4.1 percent)
Rate lock recommendation
Rates are rising overall. I would lock if I were closing any time soon. If my closing date was further out than 30 days, and I could lock without an upfront charge, I’d consider doing that as well.
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. If you can get a better rate (say, a .125 percent lower rate) by waiting a couple of days to get a 15-day lock instead of a 30, it’s probably safe to consider.
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
- LOCK if closing in 45 days
- LOCK 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 (Sep 21st, 2018)