October 8, 2015 12:19 PM Eastern
Mortgage Rate Lock Recommendation
October 8 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
Most average rates for fixed-rate mortgages edged up by just 1 basis point (1/100th of 1 percent) yesterday, according to data from Mortgage News Daily. On Tuesday, they held steady. However, those two calm days followed some real volatility that saw average rates tumble by 20 basis points in a week, followed by a rise of 9 basis points in a single day.
It's still too early to know whether it was the volatility that was an aberration or whether it was the last couple of becalmed days. However, Credit Suisse recently warned:
Over the past four years, three things have reliably triggered volatility in U.S. bond markets: potential or actual action by the Federal Reserve, falling oil prices, and trouble in foreign economies. Tight liquidity has also created a seesaw pattern in the high-yield market in particular, which has been characterized by sudden selloffs and equally speedy recoveries. The bond market currently has to deal with all of these factors at once. Fixed-income investors would do well to fasten their seatbelts, as markets are very likely to experience bouts of turbulence in the coming weeks.
Given that mortgage rates are closely tied to 10-year U.S. Treasury bonds, that warning may apply to you as much as to fixed-income investors.
What's Going On
Yesterday saw an auction of precisely those 10-year U.S. Treasury bonds, which CNBC described as "stellar." That would suggest a high demand for safe assets, such as Treasurys and mortgage-backed securities, which would normally see a fall in yields and rates. However, stock market indexes were buoyant yesterday, which might have taken off the edge. Stock markets in China were generally up this morning following an extended holiday, but others across Asia and in Europe were either flat or a little down. New York indexes were mixed 90 minutes after the markets opened.
After cutting its global growth forecasts on Tuesday, the International Monetary Fund (IMF) continued its doom-laden predictions yesterday. Its financial counselor spoke of the threat of instability and recession faced by a number of emerging economies, including most worryingly the Chinese one, but also those of Brazil, Turkey and Malaysia. This came with a warning that the chances of a new global crash have increased. The slowdowns already being seen in many emerging economies are the main cause of the continuing slump in world commodity prices, most notably oil.
Meanwhile, another Credit Suisse article, published yesterday, reported its "Risk Appetite Index entered panic mode on September 28 for the first time since 2011, as a result of risky assets having underperformed safe ones over the previous six months."
All these factors should combine to pull mortgage rates down, though it's true those are already at very low levels. However, other drivers, including healthy stock markets, are pulling in the opposite direction. This tension may result in some real volatility.
It's this potential for more volatility that's creating 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.
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 potentially volatile environment makes big increases and falls more likely. Only you can decide on the risk with which you personally are comfortable.
Today's Domestic Economic Data
This morning saw the release of the weekly unemployment report, which measures applications for new claims over the most recent seven-day period. These came in at 263,000, way better than last week's 276,000 (revised down from 277,000), and much better than the most optimistic analysts had hoped. Although these are only weekly figures, they might be good enough to catch investors' attention.
Later today, the minutes of the last Federal Open Markets Committee meeting (the Federal Reserve body that determines its rates) are due to be published. No doubt economists will analyze every word, because that's what they always do. However, so much has happened since the last meeting that the impact of any surprises may be blunted. Most now expect the Fed to postpone rate hikes until next year, regardless of weeks-old policy discussions.
Earlier this morning, yields on 10-year U.S. Treasury bonds (the ones to which mortgage rates are closely tied) were drifting back up after earlier falls, and it would be no surprise to see mortgage rates add a basis point or two today.
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, published this morning. 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.
Freddie Mac's chief economist Sean Becketti commented:
Calling the September jobs report disappointing is an understatement. The sputtering U.S. economy added only 142,000 jobs. To make matters worse, there were downward revisions to the prior two months. Hourly wages were flat, and the labor force participation rate fell to 62.4 percent, the lowest rate since 1977. In response, Treasury yields dipped below 2 percent triggering a 9 basis point tumble in the 30-year mortgage rate to 3.76 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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