What’s driving current mortgage rates?
Average mortgage rates today are mostly lower, especially FHA programs. The lack of important data in recent weeks, stalemates in Washington and sluggish financial markets have kept bonds and mortgage-backed securities (MBS) prices from changing much lately.
According to Matthew Graham at Mortgage News Daily, “In the shorter-term, there’s nothing too interesting about the past few weeks of trading. Relative to the highs and lows set in the first 3 weeks of the year, the subsequent range has been well-contained. Over the past 2 weeks, it’s been getting narrower and narrower.”
However, news of a possible compromise that would prevent a shutdown on Saturday has pushed stocks higher and could break this stalemate. The financial data below the rate table mostly indicate rising rates in the short-term.These rates are averages. Click here to get your personalized rate now. (Dec 12th, 2019)
|Conventional 30 yr Fixed||4.625||4.636||+0.09%|
|Conventional 15 yr Fixed||4.167||4.186||Unchanged|
|Conventional 5 yr ARM||4.25||4.843||-0.03%|
|30 year fixed FHA||3.875||4.864||-0.06%|
|15 year fixed FHA||3.688||4.638||-0.06%|
|5 year ARM FHA||3.875||5.269||-0.04%|
|30 year fixed VA||4.497||4.691||Unchanged|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.063||4.546||-0.01%|
|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 financial data are mostly neutral-to-negative for mortgage rates.
- Major stock indexes opened higher (bad for mortgage rates)
- Gold prices rose $1 to $1,312 an ounce. (This is slightly 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 $54 a barrel (bad for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries increased 2 basis points (2/100th of 1 percent) to 2.68 percent. That’s bad for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index rose 4 points to 68 (out of a possible 100), solidly into “greed.” That is bad news for borrowers. “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 you can get a good rate today, lock it before lenders increase their pricing based on this morning’s financial markets. Unless you want to bet on tomorrow’s Consumer Pricing Index — which could turn things around if it does not show the expected inflation.
If your closing is weeks or months away, 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. 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
Many reports this week are marked “DELAYED” in MarketWatch’s economic calendar. This has become a normal occurrence since the government shutdown began.
- Monday: Nothing
- Tuesday: Nothing
- Wednesday: Consumer Price Index January (expected to rise .1 percent, Core CPI expected to increase .2 percent)
- Thursday: Weekly Jobless Claims (predicted 27,000), Retail Sales December (expect no change), Producer Price Index (PPI) (expected increase by .2 percent)
- Friday: Retail Sales January (delayed), Consumer Sentiment January (expected 92.8)
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 5 percent interest ($50) each year. (This is called its “coupon rate” or “par rate” because you paid $1,000 for a $1,000 bond, and because its interest rate equals the rate stated on the bond — in this case, 5 percent).
- Your interest rate: $50 annual interest / $1,000 = 5.0%
When rates fall
That’s a pretty good rate today, so lots of investors want to buy it from you. You can sell your $1,000 bond for $1,200. The buyer gets the same $50 a year in interest that you were getting. It’s still 5 percent of the $1,000 coupon. However, because he paid more for the bond, his return is lower.
- 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 12th, 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.