What’s driving current mortgage rates?
Mortgage rates today get no guidance from scheduled economic reporting, and this morning’s financial data don’t point solidly in any direction, either. According to mortgage industry publication Mortgage News Daily, we’re likely to see a few bumps as bond traders try to cover their positions and minimize losses. But that’s very short-term and we only get trading information after the fact, so it’s not that helpful to borrowers.Rates Below Are Averages. Get Your Personalized Rates Here. (Dec 13th, 2018)
|Conventional 30 yr Fixed||4.875||4.886||Unchanged|
|Conventional 15 yr Fixed||4.455||4.474||Unchanged|
|Conventional 5 yr ARM||4.375||4.788||Unchanged|
|30 year fixed FHA||4.667||5.676||Unchanged|
|15 year fixed FHA||3.813||4.764||Unchanged|
|5 year ARM FHA||3.875||5.087||Unchanged|
|30 year fixed VA||4.75||4.947||-0.04%|
|15 year fixed VA||3.938||4.252||+0.06%|
|5 year ARM VA||4.125||4.377||Unchanged|
Financial data affecting today’s mortgage rates
Today’s data are pretty flat. Interestingly, gold prices and Treasury yields reversed yesterday’s increases, dropping by exactly that amount this morning. That’s how much in limbo we are right now. Rates will likely hold their ground because it’s Friday (when lenders tend to price more conservatively).
- Major stock indexes opened mixed and flat (neutral for mortgage rates)
- Gold prices fell $2 an ounce to $1,288, reversing yesterday’s $2 gain. (That is pretty neutral 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 remained at $71 a barrel (neutral for mortgage rates today; they did not increase or decrease. However, higher energy prices play a large role in creating inflation, and oil was under $50 a barrel just seven months ago)
- The yield on ten-year Treasuries also backed off yesterday’s increase, losing 2 basis points (2/100th of 1 percent) to 3.09 percent.
- CNNMoney’s Fear & Greed Index remains at 54 (out of a possible 100). That means we’re still in the “neutral” range. Moving into a more fearful state is usually good for rates, though. “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.
There will be few scheduled economic releases next week. However, all eyes remain on geopolitical news like the Iran arms deal, trade wars, and relations with North Korea. The Fed will also weigh in, releasing notes from its meeting on Wednesday. Friday is probably the most important day because consumer sentiment drives two-thirds of the US economy.
- Monday: nothing
- Tuesday: nothing
- Wednesday: New Home Sales for April (previous month was 694,000), Fed Minutes
- Thursday: Weekly Jobless Claims, Existing Home Sales for April (previous month 5.6 million)
- Friday: Durable Goods Orders for April, May’s Consumer Sentiment Index
Rate lock recommendation
There is no reason to believe that mortgage rates will change much today, barring something crazy happening in Washington, DC. If you’re close to being able to grab a shorter lock (say, 15 days instead of 30), it’s probably safe to wait a couple of days. But if rates are in your wheelhouse now, and an increase would kill your deal, lock.
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 (Dec 13th, 2018)