July 1, 2015 02:29 AM Eastern
Mortgage Rate Lock Recommendation
June 30 2015
Float if closing in 7 days:Rates may be heading down
Float if closing in 15 days:Rates may be heading down
Float if closing in 30 days:Rates may be heading down
The anticipated slump in U.S. Treasury bond yields (and therefore drop in mortgage rates) that might have been triggered yesterday by events in Greece did not materialize. Certainly, the yield of 10-year fell by 16 basis points (to 2.33 percent from 2.49 percent on Friday), and that is a sharp movement. But it's hardly the falling-off-a-cliff scenario some imagined.
For now, LendingTree is continuing to recommend that borrowers allow their rates to float: There's still room for further bond-yield falls over Greece as that drama plays out (today's the day the country looks set to formally default), and there's recently been poor or mediocre news from some other overseas regions (plus Puerto Rico!), including key emerging economies. However, absent further drops, it's likely Lock recommendations are going to be back in place tomorrow or soon thereafter. Indeed, risk-averse borrowers may wish to lock now, as there currently seems little reason to believe future falls are likely to be large -- and there remains a very small chance of a deal between Greece and its creditors being made in the next few hours, which might result in rises.
How do events in Greece affect American mortgage rates? It's all to do with the close relationship between 10-year U.S. Treasury bonds and those rates. The markets for those bonds and mortgage-backed securities compete very closely for the same investors' money. So when bond yields rise or fall, mortgage rates almost always follow, though sometimes after a short delay. Rates are most likely to fall when investors are nervous. That's because bonds and mortgages are seen as some of the safest of safe havens, and are obvious choices during difficult times for those trying to balance the risk and reward in their portfolios.
Greece's problems should be making them very nervous. The country's due to make a $1.77 billion debt payment to the International Monetary Fund later today, and is signaling that it's going to be unable to do so. Technically, that's a default, as defined by ratings agencies, although the IMF has started to euphemistically describe it as going into arrears. At the time of writing, European newspapers are reporting renewed hope of a last-minute deal that would avoid default -- roughly the 100th renewal of hope in the last month, but there's still a slim chance. Meanwhile, the Greek government is holding a referendum this weekend to allow the people to decide whether to accept further austerity measures demanded by creditors. If voters choose to reject those, it could well be forced out of the eurozone (the groups of countries that use the euro as their currency) and possibly the European Union (EU) itself.
Why aren't investors more spooked by these prospects? Well, it's not as if Greece's problems have sneaked up on them: they've been the stuff of headlines for months. And the prospect of the grim reality faced today has been trailed for weeks. So, many may already have taken defensive positions, while others might think the consequences of a Greek default could be less severe than is widely anticipated.
Important domestic economic news published this morning has been mixed. The Case-Shiller 20-City home price index showed a slowing in the rate of increase to just 0.3 percent in April, which disappointed even the gloomiest analysts. Eight of the 20 cities covered experienced falls, and such contractions haven't been seen since September 2014. Redbook's retailer sales figures for week ending June 27 showed a rise of 1.7 percent on a same-store, year-on-year basis, but that translates into an actual fall when measured month-over-month, which is way poorer than anticipated. The Conference Board's June consumer confidence figure of 101.4 was much more encouraging, way up from its revised previous reading of 94.6, and beating analysts' consensus expectations by a wide margin.
The average rate for a 30-year fixed-rate mortgage during week ending June 25 was 4.02 percent with an average 0.7 point, according to Freddie Mac. It was 4.00 percent with a point of 0.7 during week ending June 18, and 4.04 percent seven days before that.
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 are so hard to judge, and volatility is a feature of most markets. 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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