April 21, 2015 07:38 AM Eastern
Mortgage Rate Lock Recommendation
April 20, 2015
Lock if closing in 7 days:Rates are down
Lock if closing in 15 days:Rates are down
Lock if closing in 30 days:Rates are down
On balance, last week's economic news was worse than expected. It may not have been bad enough to directly affect mortgage rates, but it could contribute to a continuing general mood that is friendly to small rises. March figures for industrial production, capacity utilization, housing starts and housing permits all disappointed, while that week's number for initial claims for unemployment insurance also failed to meet expectations. Some relief to the gloom was provided by the builder confidence and consumer price indices, which showed modest rises.
Bad domestic economic news tends to exert an upward pressure on mortgage rates because it pushes investors away from the home loans market and toward U.S. Treasury bonds -- on the not wholly unreasonable grounds the American government is less likely to lose its job and default than individual consumers. So it was no surprise when Thursday's weekly mortgage rate update from Freddie Mac revealed that average fixed-rate home loans inched up last week, with rises for 30- and 15-year terms of just 1 basis point, the smallest measurable amount.
There's little to look forward to in the way of economic data this week. Analysts widely expect March figures for existing home sales (due out Wednesday), new home sales (Thursday) and durable goods (Friday) to be down on the previous month. The good news is that the sorts of poor figures seen recently make it even more improbable that the Federal Open Markets Committee will increase rates when it meets next week. Few expected that anyway, though some were anticipating a June date for the first lift. Some time even later in the year looks increasingly likely.
Of course, it's not just economic data that affect rates. Among other factors are supply and demand. So, Wednesday's Mortgage Bankers Association weekly survey was welcome for those hoping for cheaper mortgages. It revealed a fall of 2.3 percent in mortgage loan application volume during the seven days ending April 10.
It's worth noting that many believe recent bad economic data have been largely caused by exceptional factors (not least the bad weather in March), and that the underlying economy is continuing to recover well, though the strong dollar is worrying. Partly because of this, few expect significant or rapid changes in mortgage rates within the scope of these rate lock recommendations.
"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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