What’s driving current mortgage rates?
Average mortgage rates today opened slightly higher. We are expecting one of the more important economic reports, December’s Retail Sales (predicted: no change), but it has been delayed. An increase in sales would likely push rates higher, and a decline would indicate economic softening and cause rates to fall.
But we’re still waiting for the results and will have to update this post when they come through. For now, we must look at the data below the rate table for clues. Stocks are a big part of today’s increases, with big banks earning major profits and pulling the Dow and other indexes along with them.
|Conventional 30 yr Fixed||4.625||4.636||+0.04%|
|Conventional 15 yr Fixed||4.167||4.186||Unchanged|
|Conventional 5 yr ARM||4.313||4.915||+0.02%|
|30 year fixed FHA||4.0||4.99||+0.06%|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||4.0||5.342||+0.02%|
|30 year fixed VA||4.542||4.736||Unchanged|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.125||4.594||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
This morning’s opening data are mostly bad for mortgage rates.
- Major stock indexes opened higher (bad for mortgage rates)
- Gold prices dropped $1 to $1,293 an ounce. (This is slightly 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 remain at $52 a barrel (neutral for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries increased by 4 basis points (4/100th of 1 percent) to 2.74 percent. That’s significantly worse for borrowers because mortgage rates tend to follow Treasuries, and this is the lowest reading in months
- CNNMoney’s Fear & Greed Index moved 10 points higher to a reading of 42 (out of a possible 100). That score is in the “fear” range. However, the direction of movement is bad 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
There is little happening in financial markets right now. You can probably afford to float a day or two if it will get you into a better tier — for example, a 15-day lock usually has a .125 percent lower rate than a 30-day lock. But if today’s reduction got you into your strike zone and you need to close quickly, grab your rate.
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
- LOCK if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
This week is light on economic releases, and mortgage rates will likely move based on political happenings, such as the ongoing government shutdown, a trade war with China, and negotiations with Congress over the federal budget and the proposed border wall.
- Monday: Nothing
- Tuesday: December Producer Price Index (PPI), (forecast: .1 percent drop)
- Wednesday: Retail Sales (predicted: no change)
- Thursday: Housing Starts (predicted no change at 1.256 million / year rate)
- Friday: Industrial Production (expected to increase by .3 percent)
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.
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.