May 24, 2015 01:11 PM Eastern
Mortgage Rate Lock Recommendation
May 22 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
Today's consumer price index (CPI) numbers were pretty much as expected. Energy prices are firming up after their tumble, and a barely perceptible increase in the CPI was widely anticipated. For all urban consumers, it climbed just 0.1 percent on a seasonally adjusted basis. The index for all items less food and energy rose 0.3 percent.
Yesterday's Conference Board's composite index of leading indicators (which looks at 10 indicators of economic activity that could suggest whether the economy's heading into a peak or trough) was more exciting. The consensus forecast among analysts was for a rise of 0.3 percent in April. In the event, at +0.7 percent, the outcome was a pleasant surprise.
Pleasant surprises have been a rarity of late, and other data released yesterday were more on-trend. April's existing home sales failed to meet analysts' rosy expectations, falling 3.3 percent, while weekly job figures showed 10,000 extra initial unemployment insurance claims over the previous seven days.
All this feeds the debate that 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 emerged Wednesday, on publication of the minutes of the Federal Open Market Committee's last meeting, that the debate now extends to its exalted members. The Financial Times' report on the minutes said: "Doubts about the strength of the US recovery appeared to grow among Federal Reserve policymakers in their latest rate-setting meeting as soggy economic data pushed back the prospects of a near-term rate hike."
However, the focus for those interested more immediately in the direction of mortgage rates remains the bond market, which has been unusually 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 closed at 2.19 percent, which was seven basis points below Wednesday's figure. However, that's still elevated compared with the 2015 average, and only 9 basis points shy of this year's high. Although mortgage rates don't directly shadow these 10-year bond yields, there is a relationship between them.
The occasional looseness of that relationship was underscored by the fact that average mortgage rates remained essentially flat -- in spite of those bond yields spiking -- during the week ending May 21, according to Freddie's weekly rate figures, published yesterday. The average rate for a 30-year fixed-rate mortgage fell back by a single basis point to 3.84 percent with a 0.7 point. However, that is still not far off the 2015 high.
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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