What’s driving current mortgage rates?
Average mortgage rates today dropped nicely due to a number of factors. The Conference Board’s Leading Economic Indicators did not move the needle, by edging up just .1 from July’s .5 to .6. This is not a big deal because the report is a lesser one, and because the change was so minimal.
However, the University of Michigan’s Consumer Sentiment for August, which experts predicted to rise to 98.4 actually fell to 95.3. That’s a big deal and very good news for mortgage borrowers, because consumer activity drives two-thirds of the US economy. Less-confident consumers are likely to dial back purchasing, which can slow the economy, calm inflationary pressures, and cause mortgage interest rates to fall.Rates Below Are Averages. Get Your Personalized Rates Here. (Jan 18th, 2019)
|Conventional 30 yr Fixed||4.75||4.761||Unchanged|
|Conventional 15 yr Fixed||4.292||4.311||-0.04%|
|Conventional 5 yr ARM||4.25||4.761||Unchanged|
|30 year fixed FHA||4.372||5.378||Unchanged|
|15 year fixed FHA||3.625||4.575||Unchanged|
|5 year ARM FHA||3.875||5.208||-0.02%|
|30 year fixed VA||4.542||4.736||Unchanged|
|15 year fixed VA||3.75||4.063||Unchanged|
|5 year ARM VA||4.125||4.505||-0.05%|
|Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.|
Financial data affecting today’s mortgage rates
Today’s data are neutral-to-favorable for mortgage rates. But mostly favorable except for the rise in oil prices.
- Major stock indexes opened mixed but flat (neutral for mortgage rates)
- Gold prices fell $1 to $1,186 an ounce. (That is tiny, so pretty much neutral for 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 increased by $1 to $66 a barrel (bad for today’s mortgage rates, because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell 2 basis points (2/100th of 1 percent) to 2.86 percent. That is good news for mortgage borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index edged 2 points lower to a reading of 49 (out of a possible 100). That is good for interest rates because the index moved into a “greedier” state. Normally, “greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite
Rate lock recommendation
If I had a loan in process, I’d be inclined to lock. Unless by floating a day or two, I could get a better deal (15-day instead of 30-day, for instance) by doing so. But locking in today is also a good decision because today’s mortgage rates are so favorable.
In general, pricing for a 30-day lock is the standard most lenders will (should) quote you. The 15-day or 7-day option should get you a discount of about .125 percent, 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. I recommend:
- 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
Wednesday and Friday are the most important days for economic reporting. Anything indicating increased consumer activity or confidence is bad for mortgage interest rates. The reverse is also true. And when actual figures exceed analysts’ expectations, rates can increase. When actual numbers fall short, mortgage rates often fall.
- Monday: Nothing
- Tuesday: Nothing
- Wednesday: Retail Sales from the Commerce Department (.1 percent increase expected), Industrial Production for July (.3 percent increase predicted)
- Thursday: Weekly Jobless Claims (213k previous week) Housing Starts for July (1.274 m predicted)
- Friday: Leading Economic Indicators (previously up .5 percent), and The University of Michigan’s Consumer Sentiment for August (predicted to rise to 98.4)
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 (Jan 18th, 2019)