July 29, 2015 12:53 AM Eastern
Mortgage Rate Lock Recommendation
July 28 2015
Lock if closing in 7 days:Rates may be heading up
Lock if closing in 15 days:Rates may be heading up
Lock if closing in 30 days:Rates may be heading up
If you visited this corner of the Internet yesterday, you may have read about two conflicting pressures on mortgage rates, one pushing them up and the other pulling them down. Today, the one tending to push them up looks stronger while the one exerting downward pressure is weaker.
The one that was principally pulling them down was the safe-haven effect, which sees money pouring into U.S. bond and mortgage markets when financial or economic crises anywhere in the world spook investors. Twenty-four hours ago, the need for a haven seemed strong because the Chinese Shanghai share index had just dropped more than 8 percent, its largest fall since early 2007. Falls continued today, but at a much slower rate, with the Shanghai Composite closing down 1.7 percent.
The pressure pushing rates up is led by speculation that the Federal Reserve's Federal Open Markets Committee (FOMC), which has its monthly meeting today and tomorrow, is going to move toward increasing the interest rates it controls, with the first rise possibly taking effect as early as September. Former Richmond Fed President Alfred Broaddus told CNBC this morning he thought September a likely date, assuming no unexpectedly disastrous economic data were published in the meantime.
In themselves, this morning's disappointing figures from the S&P/Case-Shiller home price index are unlikely to move either the FOMC or investors much. These revealed a shock drop of -0.2 percent in home prices in May in the 20 metropolitan regions the index covers. Meanwhile, the Purchasing Managers' Index (PMI) services flash for July was much better than expected at 55.2, compared with 54.8 in June. However, the Conference Board's consumer confidence measure took a tumble to 90.9 in July. That was disappointing even within the context of an expected fall from June's outstanding 99.8. Conference Board director of economic indicators Lynn Franco eased the pain in a statement:
Consumer confidence declined sharply in July, following a gain in June. Consumers continue to assess current conditions favorably, but their short-term expectations deteriorated this month. A less optimistic outlook for the labor market, and perhaps the uncertainty and volatility in financial markets prompted by the situation in Greece and China, appears to have shaken consumers' confidence. Overall, the Index remains at levels associated with an expanding economy and a relatively confident consumer.
Regular readers will know all about the very close relationship between mortgage rates and yields on 10-year U.S. Treasury bonds. When one goes up or down, the other almost always follows, roughly in proportion. In recent days, those bond yields have been falling, although at 10:00 a.m. ET this morning they were inching up. Still, those who like a little risk in their lives might wish to postpone locking their mortgage rates in the hope the seven-day downward trend will continue. However, that's a bit of a gamble, and others may prefer to lock now, especially as the potential gains of making that "float" wager look likely to be relatively small.
The average rate for a 30-year fixed-rate mortgage during week ending July 23 was 4.04 percent with an average 0.6 point, according to Freddie Mac. The same rate averaged 4.09 percent during week ending July 16, and 4.04 percent seven days before that. This was the sixth consecutive week during which that particular rate began with a "4."
Forecasting the direction of mortgage rates is difficult at the best of times. Something that might be expected in some circumstances to push both them and bond yields up can in others exert a downward force — and vice versa. Those forecasts are especially perilous when the future prospects of economies around the world (and at home!) are so hard to judge. However, absent more shock developments, few expect large 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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