May 22, 2015 05:59 AM Eastern
Mortgage Rate Lock Recommendation
May 20 2015
Lock if closing in 7 days:Rates are up
Lock if closing in 15 days:Rates are up
Lock if closing in 30 days:Rates are down
With no new key economic data out today, the focus for those interested in the direction of mortgage rates is the bond market, which has been particularly volatile recently. In particular, 10-year U.S. Treasury bonds are important, because they're the ones that compete most directly for investors' money with the residential mortgage market.
Yesterday, yields for those reached 2.27 percent, which was just one basis point below the 2015 high reached last week. Although mortgage rates don't directly shadow these 10-year bond yields, there is a relationship between them, and it would be no surprise if average rates were to continue to rise this week in response to these recent highs.
Certainly Freddie Mac ascribed much of last week's rise in mortgage rates to the influence of these bonds. The average rate for a 30-year fixed-rate mortgage reached 3.85 percent (0.6 point) during the week ending May 14, according to Freddie's weekly rate figures, published last Thursday. That's up from 3.80 percent for the previous seven days, represents the third consecutive week of rises, and is very close to the 2015 high.
On the wider economic front, a debate continues to rage between economists. On the one hand, are the optimists, who believe that the weak first quarter and so-far generally disappointing April data are results of exceptional factors, that the economy's fundamentals are sound and that normal growth should resume soon. On the other are the pessimists, who remain deeply concerned that the strong dollar is significantly and adversely affecting trade and growth.
It would be good to think that the optimists are right in spite of the numbers, but either way it has been welcome news that the dollar has been finally weakening. Following those recent poor data and strong GDP numbers from the Eurozone, it has been falling, and by last week was down by more than 7 percent from its 52-week high, reached in mid-March, according to the US Dollar Index (DXY). However, it's been climbing again this week, and is now (at 95.56 on that index) only nearly 5 percent below that high of 100.39.
A weaker dollar, if it can be achieved and sustained, might improve the competitiveness of American companies in the global market and give GDP a bit of a much-needed boost. However, that may turn out to be a struggle, at least in the short term. The European Central Bank announced yesterday that it was planning to accelerate the pace of its bond purchases, which are part of its stimulus program, and the news saw the euro tumble against a basket of currencies.
Forecasting the direction of mortgage rates is difficult at the best of times. Something that might generally push them up (bad economic news, say) can also exert a downward force (because investors tend not to fear inflation or have as many attractive options when times are tough) -- and vice versa. Those forecasts are especially perilous when the future prospects of the American and other economies are so hard to judge. However, absent shock developments, 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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