What’s driving current mortgage rates?
Mortgage rates today opened lower than they did Friday, probably because lenders tend to price a little conservatively on Fridays. Then if nothing happens over the weekend, they can safely drop rates a bit.
Rates will receive no push from economic reporting — there is nothing on the agenda today. However, borrowers should watch out for a correction, which always seems to follow sustained pushes in one direction. Recently, they have been drifting lower; bond investors will start profit-taking and then we may see a small jump.These rates are averages. Click here to get your personalized rate now. (May 25th, 2019)
|Conventional 30 yr Fixed||4.875||4.886||-0.04%|
|Conventional 15 yr Fixed||4.455||4.474||Unchanged|
|Conventional 5 yr ARM||4.313||4.982||Unchanged|
|30 year fixed FHA||4.667||5.676||Unchanged|
|15 year fixed FHA||3.938||4.89||Unchanged|
|5 year ARM FHA||4.0||5.42||Unchanged|
|30 year fixed VA||4.708||4.905||-0.04%|
|15 year fixed VA||4.0||4.315||-0.06%|
|5 year ARM VA||4.063||4.653||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 most important numbers — stocks, oil and Treasuries — are neutral-to-slightly good for rates.
- Major stock indexes are mixed but flat (neutral for mortgage rates)
- Gold prices remained at $1,250 an ounce. (This is 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 reversed Friday’s increase by falling $2 to $51 a barrel (good for rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries reversed Friday’s gain by dropping 5 basis points (5/100th of one percent) to 2.85 percent. That’s good for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index walked back Friday’s 2 point increase, falling 2 points to a reading of 11 (out of a possible 100). That score is in the “extreme fear” range. And the direction, more fearful, is good for rates. “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
Friday is not generally the best day to lock. However, we may have seen the bottom for at least the next few weeks. You could probably float until Monday if that will get you into a better tier (for instance, drop from a 45-day lock to a 30-day, or a 30-day into a 15-day lock). But if closing soon, current rates are attractive enough to feel good about.
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 your 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
- FLOAT if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
This week offers fewer reports, but Tuesday and Thursday’s consumer-related data are important. Stay in contact with your lender if you’re still floating a rate.
- Monday: Nothing
- Tuesday: November’s Producer price index (moderately important, a .1 percent increase in the core reading predicted) measures inflation in the manufacturing sector of the economy. If the core reading increases by more than expected, mortgage rates could increase. If it moves less, rates could come down)
- Wednesday The retail counterpart of the PPI, November’s Consumer Price Index, is even more important because consumer spending is 2/3 of our economy. Analysts expect a .2 percent increase in the core data. We’ll also get a Treasury auction of 10-year Notes. High demand could cause mortgage rates to fall; the opposite is also true
- Thursday: The Treasury will auction 30-year Notes. High demand means better rates, and low demand means higher rates. November’s Retail Sales report (highly-important, .2 percent increase expected) could drive inflation if sales increased more than analysts predicted. But lower numbers would be good for mortgage rates
- Friday: November’s Industrial Production report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Experts predict a 0.3 percent increase in output. A drop would be good news for mortgage rates, but stronger-than-anticipated would be bad news for 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 (May 25th, 2019)
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.