February 9, 2016 10:48 AM Eastern
Mortgage Rate Lock Recommendation
February 8 2016
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
Today, mortgage rates look more likely to rise, possibly significantly, than to hold steady or fall. However, it's important to remember how volatile markets currently are: Trends can change very quickly and for little apparent cause, so there's a heightened risk in relying on forecasts based on early trends.
No important new domestic economic data were published this morning and no Treasury bond auctions are scheduled for today, so any movements in rates are likely to be down to foreign issues or changes in sentiment. At about 10:00am (ET), yields on 10-year U.S. Treasury bonds, which are closely tied to mortgage rates, were significantly higher. While those yield trends on those bonds at that time of the morning frequently turn out to be accurate predictors of the direction of travel for the day's mortgage rates, they slow, accelerate or reverse sufficiently often that they can't be relied upon as a basis for making important financial decisions. During unstable times, such as these, they are even less reliable.
Also at about 10:00am (ET), major stock markets around the world were mostly down (Tokyo and Hong Kong were the exceptions), with those in Europe experiencing sharp losses. Some European indexes were at 16-month lows earlier. Just 30 minutes after opening, the Dow Jones industrial average was down by -1.61 percent and the NASDAQ by -1.98 percent. The oil price too was sharply lower, and perilously close to the psychologically important $30/barrel level.
Commentators suggest today's movements are down to investor sentiment: they're spooked by the prospect of a global recession. The mood wasn't helped by a recent Citigroup research note that warned of a possible "death spiral" in markets. For more on this, see "The Bigger Picture," below.
As (so far with masterly understatement) the Wall Street Journal warned in January, this could be a "volatile year in global markets." There's always a risk in choosing to float or lock your rate, but it's more acute in volatile environments. True, there are opportunities for rich rewards if rates fall substantially, but there is also a continuing danger of being trapped in an upward cycle that doesn't end before you have to lock your rate.
So those who are cautious may wish to lock today, trading the possibility of further falls in rates for the security of fixing what should still 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.
That advice applies to all readers, even though LendingTree suggests that those with longer to wait before they must lock might prefer to continue to float. That recommendation is not based on any special insights concerning how mortgage rates might move, but merely on the calculation that there's a greater chance – amid the current volatility – of significant falls within 30 days than 15. Such falls may not occur at all, and it's perfectly possible rises will predominate over that period.
Average rates for 30-year fixed-rate mortgages (FRMs) inched up by a single basis point (1/100th of 1 percent) on Friday, according to Mortgage News Daily. That leaves them just 1 basis point above their lowest level in eight months.
The Bigger Picture
Unlike most other interest rates, those for mortgages (except ones for existing adjustable-rate mortgages) are largely determined by the supply of money into the market from investors and the demand for such loans from consumers. That supply is heavily affected by the amount of risk investors are prepared to sustain in their portfolios. When spooked by economic uncertainty, they tend to buy safe assets, including mortgage securities, which can result in an increased supply of product (cash) that drives down the price (rates). When they're more confident, they tend to invest in riskier but more profitable assets, which reduces the supply and drives up rates. That's not to say the Federal Reserve doesn't influence mortgage rates; just that it does so only indirectly.
Looking beyond, one hopes, the period covered by these mortgage rate lock recommendations, some economists are predicting a new worldwide recession, which might see mortgage rates fall even further. British newspaper The Daily Telegraph ran an extensive feature over the weekend that warned: "A pernicious cycle of collapsing commodities, corporate defaults and currency wars looms over the global economy." Others see a less cataclysmic but still worrying future. The Guardian's website ran an article yesterday by Nouriel Roubini, who is professor of economics at New York University's Stern School of Business, and who suggested, "Welcome to the new abnormal for growth, inflation, monetary policies and asset prices. Make yourself at home. It looks like we'll be here for a while."
However, not all economists are so gloomy. This morning, Goldman Sachs estimated the chance of the United States experiencing a recession in the next four quarters at 15 percent, and the bank "is betting 'Mr. Market' is wrong in its recession warnings," according to Bloomberg. Indeed, many experts expect American mortgage rates to edge up early this year and to stay a little higher than at present. For example, in its current Housing Forecast, published January 11, Fannie Mae's economics team predicted that those for 30-year FRMs will average 4.0 percent in the current quarter, 4.1 percent in the following two, and 4.2 percent in the last quarter of 2016.
Recent Mortgage Rates
The average rate nationwide for a 30-year FRM during the week ending February 4 was 3.72 percent with an average 0.6 point, according to Freddie Mac's latest weekly survey. The same rate averaged 3.79 percent during the week ending January 28, and 3.81 percent seven days before that. This time last year, the average 30-year FRM came in at 3.59 percent.
Freddie Mac chief economist Sean Becketti observed in a statement that accompanied the latest data:
Market volatility -- and the associated flight to quality -- continued unabated this week. The yield on the 10-year Treasury dropped another 15 basis points, and the 30-year mortgage rate fell 7 basis points as well, to 3.72 percent. Both the Treasury yield and the mortgage rate now are in the neighborhood of early-2015 lows. These declines are not what the market anticipated when the Fed raised the Federal funds rate in December. For now, though, sub-4-percent mortgage rates are providing a longer-than-expected opportunity for mortgage borrowers to refinance.
"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.
Recent Mortgage Rate Articles
Recommended Mortgage Rate Articles