October 6, 2015 02:33 PM Eastern
Mortgage Rate Lock Recommendation
October 6 2015
Lock if closing in 7 days:Rates may be heading up
Lock if closing in 15 days:Rates may be heading up
Float if closing in 30 days:Rates may be heading down
The new-found volatility in mortgage rates continued yesterday when the average nationally for 30-year fixed-rate mortgages (FRMs) climbed 9 basis points (a basis point is 1/100th of 1 percent), according to data from Mortgage News Daily. That followed a 20 basis point fall across last week, which itself followed many weeks during which they oscillated within a fairly narrow range.
Although there are rational drivers behind some changes, it's useful to revisit a metaphor used here yesterday to describe how the investors who determine mortgages rates often work:
Think herbivores at an African watering hole when they suddenly realize the floating log might be a crocodile ... you're dealing with the herd instinct of timid creatures who can sometimes inexplicably ignore real threats, yet a second later stampede in response to a shadow.
What's Going On
Certainly, most of the drivers behind last week's falls are still in place. Friday's disappointing Employment Situation report hasn't gone anywhere. And the slowdowns in many emerging economies, including most critically China, and the continuing slump in world commodity prices, most notably oil, remain as threatening to U.S. growth as ever. So what caused yesterday's rise? Yesterday evening, CNBC referred to "increased risk appetite," which you may think is a thin reason: Why the sudden increase in appetite? Perhaps it just means the herbivores are willing to take a chance on another drink.
It's possible yesterday morning's announcement of a final agreement on the controversial Trans-Pacific Partnership (TPP) trade deal played a part in the rise, although that's yet even to begin to make its likely difficult way through Congress. As observed here 24 hours ago, "This is widely seen as business-friendly, and may exert an upward pressure on mortgage rates."
There seems to be no end to other nations' economic woes, and these and their knock-on effects on American growth provide plenty of potential for further falls in mortgage rates. But we're back to our African waterhole: investors might well choose to ignore the global dangers (just as they did throughout September and a number of months before), and return for another drink. That could see those rates edge up further.
So there's a risk in choosing to float or lock. 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.
LendingTree is 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. That's not based on any special insights, except there are more chances of further falls in 30 days than 15 – and the current volatile environment makes big increases and falls more likely. Only you can decide on the risk appetite (as CNBC might call it) with which you personally are comfortable.
Today's Domestic Economic Data
The big domestic economic data published this morning concerned America's international trade during August. Most analysts expected the trade deficit to grow, because the strong dollar has made exports more expensive (reducing foreign demand for our goods) while making imports cheaper (increasing our demand for theirs). The consensus expectation was for "the trade deficit to widen to $44 billion from $41.9 billion in July," according to a bulletin yesterday evening from the New York Times. In the event, the actual figure was $48.3 billion, so better than anticipated – though maybe not sufficiently better to shift rates much either way.
Earlier this morning, yields on 10-year U.S. Treasury bonds, to which mortgage rates are closely tied, had experienced some quite sharp rises and falls, ending up close to where they started. So they're providing little indication of what to expect later today.
Recent Mortgage Rates
The average rate nationwide for a 30-year fixed-rate mortgage during the week ending October 1 was 3.85 percent with an average 0.6 point, according to Freddie Mac's latest weekly survey, which uses different methodologies from Mortgage News Daily. The same rate averaged 3.86 percent during the week ending September 24, and 3.91 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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