What’s driving current mortgage rates?
Average mortgage rates rose very slightly yesterday. So slightly, indeed, that your lender may not have bothered adjusting yours, although it may have slightly increased your upfront costs. That’s not too far from our prediction 24 hours ago when we said they’d likely be “somewhat higher.” In any event, we remain in a situation where markets are drifting aimlessly. Chances are, they’ll find a direction — up or down — soon enough. But whether that’s today, next week or even further is the future remains unknown.
Yesterday’s rise still leaves average rates very close to their 12-month low. At their close last evening, they were still lower than they were on Tuesday. So we’re far from pushing the panic button and urging more locking. It’s still possible that, when they finally break out, they’ll go down further.
The data below the rate table are mostly indicative of unchanged or slightly lower rates in the short-term.
|Conventional 30 yr Fixed||4.58||4.591||Unchanged|
|Conventional 15 yr Fixed||4.125||4.144||+0.04%|
|Conventional 5 yr ARM||4.25||4.811||Unchanged|
|30 year fixed FHA||3.875||4.864||Unchanged|
|15 year fixed FHA||3.688||4.638||Unchanged|
|5 year ARM FHA||3.938||5.293||Unchanged|
|30 year fixed VA||4.413||4.606||Unchanged|
|15 year fixed VA||3.875||4.189||+0.06%|
|5 year ARM VA||4.063||4.546||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
Earlier, today’s market data were mostly positive for mortgage rates, suggesting those rates might hold steady or fall a little over the next 24 hours. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were heading higher (good for mortgage rates)
- Gold prices fell, standing at $1,331 an ounce compared to yesterday’s $1,336. (This is bad 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 were essentially unchanged at $57 (neutral for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell to 2.66 percent. up from yesterday’s 2.69 percent. That’s good for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index plummeted to 55 from yesterday’s 70 (out of a possible 100). It remains solidly in “greed” territory. The fall is good 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. So lower readings are better than higher ones.
Rate lock recommendation
With nothing special on the economic calendar today and relatively calm markets first thing, there’s little to suggest mortgage rates will go far today. Of course, that could change.
For some time now, we’ve been urging those who are floating to remain vigilant. It’s been more than two weeks since average mortgage rates moved outside a narrow band. And it’s easy to assume we’ve settled into a rut with our wheels spinning — not least because we have. But these sorts of ruts rarely last long. And the tires (or markets, in this metaphor) could gain traction at any time.
So continue to watch markets and news cycles closely. In particular, look out for stories that might impact the performance of the American economy. As a very general rule, float on bad news and lock on good. So, for instance, if the U.S.-China trade talks reach a successful conclusion (China’s vice premier Liu He is in Washington D.C. for talks today), be ready to talk to your lender about locking. But, if they break up messily, relax — unless a similarly important good-news story emerges at roughly the same time.
When to lock anyway
You may wish to lock your loan anyway if you are buying a home and have a higher debt-to-income ratio than most. Indeed, you should be more inclined to lock because any rises in rates could kill your mortgage approval. If you’re refinancing, that’s less critical and you may be able to gamble and float.
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
A couple of reports this week are marked “DELAYED” in MarketWatch’s economic calendar. This has become routine in the wake of the recent government shutdown.
It’s the last day of the week and nothing significant is scheduled on the calendar. So it’s unlikely economic data will have any impact on markets today.
- Monday: Nothing
- Tuesday: Nothing
- Wednesday: Publication of the minutes of the last meeting of the FOMC
- Thursday: Weekly Jobless Claims (216,000 actual compared with the predicted 229,000), Durable Goods Orders for December (up a disappointing 1.2 percent, against a forecast of 1.4 percent), January Existing Home Sales (4.94 million actual (a three-year low) against an expected 4.98 million), Leading Economic Indicators for January: declined 0.1 percent.
- Friday: Nothing
What causes rates to rise and fall?
Mortgage interest rates depend 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.
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.