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Mortgage rates today, May 4, 2018, plus lock recommendations

Gina PogolThe Mortgage Reports Contributor

What’s driving current mortgage rates?

Mortgage rates today dipped slightly, following this morning’s highly-important financial reports. Nonfarm Payrolls increased by nearly 30,000 over March, but analysts expected 20,000 to 30,000 more new jobs than the 164,000 actually added. That caused stocks to fall, but it good for bonds and mortgage rates.

However, April’s Unemployment Rate slipped from March’s 4.1 percent to 3.9 percent, lower than the predicted 4.0 percent. That’s a good indicator for the economy, but bad for anyone floating a mortgage rate.

 Average Hourly Earnings also missed the mark, increasing by just .15 percent instead of the anticipated .2 percent. That’s good for rates because inflation is less of a threat without upward pressure on wages.

Rates Below Are Averages. Get Your Personalized Rates Here. (Sep 21st, 2018)
Program Rate APR* Change
Conventional 30 yr Fixed 4.75 4.761 Unchanged
Conventional 15 yr Fixed 4.25 4.269 -0.04%
Conventional 5 yr ARM 4.25 4.743 -0.02%
30 year fixed FHA 4.5 5.507 Unchanged
15 year fixed FHA 3.75 4.701 Unchanged
5 year ARM FHA 3.875 5.087 Unchanged
30 year fixed VA 4.625 4.82 Unchanged
15 year fixed VA 3.875 4.189 Unchanged
5 year ARM VA 4.0 4.331 Unchanged

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

Financial data affecting today’s mortgage rates

The main indicator that concerns me about future rates is oil price increases. Prices were below $50 a barrel about six months ago; now they’re approaching $70. That should concern anyone who doesn’t own an oil company.

  • Major stock indexes opened mixed and flat this morning (neutral for mortgage rates)
  • Gold prices rose $9 to $1,314 an ounce. (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 prices rose $2 to $69 a barrel (bad news for mortgage rates, because higher energy prices play a large role in creating inflation)
  • The yield on ten-year Treasuries held steady at 2.93 percent. This neutral, as mortgage rates tend to move with Treasury yields.
  • CNNMoney’s Fear & Greed Index rose 8 points to 35 (out of a possible 100). That means we’re solidly in the “fear” range. However, 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.
Verify your new rate (Sep 21st, 2018)

This week

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, though we got a nice downward bump this morning. 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
Lock in your rate. Start here. (Sep 21st, 2018)

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)