What’s driving current mortgage rates?
Mortgage rates today are nearly unchanged following the Presidents’ Day holiday. Friday’s modest rise ended a week in which rates had risen and fallen on alternate days. This suggests the markets that drive mortgage rates are uncertain which direction to take and will require a trigger to set a more definite trend.
With no scheduled economic reporting this morning, borrowers will have to take their cue from news events, White House wheeling and dealing, and the economic data listed below the mortgage rate table. Experts at Mortgage News Daily indicate that mortgage-backed securities (MBS) and bonds are trading in an increasingly narrow range, and that pattern can’t be sustained much longer. However, they offered no clue as to which direction this breakout will take.
The data below the rate table are mostly indicative of slightly lower or unchanged rates in the short-term.
|Conventional 30 yr Fixed||4.58||4.591||Unchanged|
|Conventional 15 yr Fixed||4.125||4.144||Unchanged|
|Conventional 5 yr ARM||4.313||4.846||-0.01%|
|30 year fixed FHA||3.875||4.864||-0.06%|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||3.938||5.299||Unchanged|
|30 year fixed VA||4.413||4.606||Unchanged|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.063||4.552||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
Today’s financial data were mostly positive for mortgage rates, though only a little. By approaching 10:00 a.m. (ET):
- Major stock indexes were very slightly down, with the Dow Jones Industrial Average 0.05 percent lower (good for mortgage rates)
- Gold prices continued to climb, adding a little over 1 percent to $1,336 an ounce. (This is 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 by $1 to $56 a barrel (bad for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell 1 basis point (1 100th of 1 percent) to 2.65 percent. That’s good for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index added another point on Friday, rising to 70 (out of a possible 100), solidly in “greed” territory. That is bad 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 mortgage rates generally becalmed, and moving up and down on alternate days, you may feel that there’s no particularly urgent need to lock. And you may well be right, although you should remember the risks posed by unexpected events.
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
- FLOAT 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.
Thursday is the day likely to see most action this week, with the publication of four reports, any of which could move mortgage rates. However, Wednesday’s release of the Federal Open Market Committee’s (FOMC — the Fed body that determines many interest rates) minutes of its last meeting also has the potential to cause waves. The details those reveal sometimes move markets if they contain something unexpected. However, there was an official statement after the last meeting, and committee members have had numerous speaking engagement since then. So the likelihood of serious shocks seems limited.
- Monday: Nothing
- Tuesday: Nothing
- Wednesday: Publication of the minutes of the last meeting of the FOMC
- Thursday: Weekly Jobless Claims (predicted 229,000), Durable Goods Orders for December (forecast up 1.2 percent), January Existing Home Sales (expected 4.98 million), Leading Economic Indicators for January
- Friday: Nothing
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.
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.