April 27, 2015 02:34 PM Eastern
Mortgage Rate Lock Recommendation
April 24, 2015
Lock if closing in 7 days:Rates are up
Lock if closing in 15 days:Rates are up
Float if closing in 30 days:Rates are down
Yesterday's release of figures for sales of new homes showed a slump of 11.4 percent in March. That clearly wasn't good, but it followed freakishly high numbers in February, so wasn't perhaps quite as bad as on first sight. And it also followed on from publication of good existing-home sales data on Wednesday.
However, April has seen a succession of flat or disappointing economic figures, mostly concerning March, that has created downbeat mood music. Together, these may not have been bad enough to directly affect mortgage rates (not least because many investors expect things to look considerably better next month), but they could have contributed to a continuing general environment that is friendly to small rises.
Bad domestic economic news tends to exert an upward pressure on mortgage rates because it pushes investors away from the home loans market and toward U.S. Treasury bonds -- on the not wholly unreasonable grounds the American government is less likely during tough times to lose its job and default than individual consumers. However, yesterday's weekly survey from Freddie Mac revealed that average rates for 30-year fixed-rate mortgages actually inched -- though almost imperceptibly -- down this week: to 3.65 percent (with 0.6 points) from 3.67 percent.
Yields for 10-year Treasury bonds (the ones most investors regard as the closest alternative to residential mortgages) jumped Wednesday to an April high of 1.99 percent, though they fell back yesterday to 1.96 percent. The good news is that the sorts of disappointing figures seen recently make it even more improbable that the Federal Open Markets Committee will increase rates when it meets next week. Few expected that anyway, though some were anticipating a June date for the first lift. Some time even later in the year looks increasingly likely.
Of course, it's not just economic data that affect rates. Among other factors are supply and demand. So Wednesday's Mortgage Bankers Association survey could prove relevant. It revealed that overall mortgage applications were up 2.3 percent during the week ending April 17. Applications for home purchases jumped a seasonally adjusted 5 percent over that period. As MBA chief economist Mike Fratantoni observed, "Purchase applications increased for the fourth time in five weeks as we proceed further into the spring home buying season."
It's worth noting that many believe recent adverse economic data have been largely caused by exceptional factors (not least widespread bad weather in March), and that the underlying economy is continuing to recover, though the strong dollar is worrying. Partly as a result of this uncertainty over the economy's direction, 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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