October 13, 2015 06:59 PM Eastern
Mortgage Rate Lock Recommendation
October 13 2015
Float if closing in 7 days:Rates may be heading down
Float if closing in 15 days:Rates may be heading down
Float if closing in 30 days:Rates may be heading down
Yesterday saw average rates for 30-year fixed-rate mortgages (FRMs) edge up by 1 basis point (a basis point is 1/100th of 1 percent), according to data from Bloomberg. That means they regained a total of 18 basis points last week and so far are more than recovering from their slump earlier in the month.
What's Going On
This doesn't necessarily mean that bout of volatility is over, nor that rates won't fall lower again. Here are just a short list of influences that could drive mortgage rates up and down:
- Bad foreign economic data from advanced and emerging markets, especially China. That sort of bad news usually pulls rates down.
- The Fed looks more likely to hike rates this year. Usually pushes rates up. Over the last 48 hours, three top Fed officials have said they think a 2015 rise likely.
- The Fed looks less likely to hike rates this year. Usually pulls rates down. Yesterday, Fed Governor Lael Brainard urged a wait-and-see approach, which was much more eye-catching than her three colleagues' remarks.
- Bad domestic economic data. Usually pushes rates down, but that doen't always apply in the current environment. That's because analysts, traders and investors are obsessed with that Fed hike.
- Low commodity prices, including oil. Usually pushes rates down, but that obsession with the Fed can sometimes see the opposite effect.
This morning, there are a number of those factors affecting mortgage rates and wider markets. Very low figures for Chinese imports in September were likely behind tumbles in most stock markets around the world. Commodity prices were also down. These combined are probably why yields for 10-year U.S. Treasury bonds are falling at the time of writing. Mortgage rates are closely tied to those yields, so it's highly likely they're dropping too.
LendingTree has before today been recommending those who have to fix their rates within the next 15 days to lock now, while those who have longer to wait continue to float. However, given that it currently looks more likely rates will fall today that advice has changed, and some with closer closing dates may wish to wait 24 hours to see how the market is then. However, there are no guarantees in this, and it's not unusual for such trends to reverse quickly.
There remains a risk in choosing to float or lock your rate. Those who are cautious may wish to lock today, trading the possibility of further falls in rates for the security of fixing what should be an exceptionally good mortgage deal in historical terms. Those who like to gamble might prefer to wait awhile before locking, hoping there will be further falls ahead. Only you can decide on the risk with which you personally are comfortable.
There's very little happening today in terms of domestic economic data. The NFIB small business optimism index for September showed a small but surprise rise over the previous month. However, these figures rarely move markets.
The U.S. Treasury's September accounts are due out later in the day, but few are expecting surprises. It should be a good year for the budget, which is well down on last year's.
Recent Mortgage Rates
The average rate nationwide for a 30-year fixed-rate mortgage (FRM) during the week ending October 8 was 3.76 percent with an average 0.6 point, according to Freddie Mac's latest weekly survey. The same rate averaged 3.85 percent during the week ending October 1, and 3.86 percent seven days before that. This time last year, the average 30-year FRM came in at 4.19 percent.
"Locking" your mortgage means that you and your lender have agreed on an interest rate and price for your home loan. Once your loan is locked, that's the rate and price you get, regardless of what happens in the financial markets. If rates go up, you're protected but if rates go down, you won't benefit either -- you close your loan at the rate you've locked and you can’t change it. Locks have expiration dates ranging from 30 to 60 days or more, and the longer your lock period, the more it costs. If you don't close your loan on time, you could end up paying a higher interest rate.
You can lock in your loan at any time during the process. Until you lock your interest rate, you are said to be "floating" your mortgage. The only rule is that you have to lock in before you can close on your purchase or refinance.
The decision to lock or float your loan can have a long term impact so it’s important you make the right choice. That’s why we offer a quick rundown of the key factors that drive mortgage rates today and everything you need to know.
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