September 1, 2015 12:07 PM Eastern
Mortgage Rate Lock Recommendation
September 1 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
Those who have to decide when to lock their mortgage rates are in an unenviable position at the best of times: There's always plenty of uncertainty in markets, and those bring risks whichever decision you make. But it's currently especially hard to predict the direction in which rates are going to move.
What's Going On
Three factors are particularly hard to call:
- When the Federal Reserve is going to implement its first rate hike in nine years. At one point, most observers believed that would happen later this month, then support for that belief fell back but now it's growing again. However, there remains plenty to go wrong before a final decision is made, and Wall Street will be closely examining every important release of domestic economic data in case it affects whether Fed rates rise or stay put. Investors want to see an early rise, and any growth in the expectation that one will occur can push up mortgage rates – and any fall in that expectation can drag them down. Expect a bumpy ride in the couple of weeks before the Federal Open Markets Committee (FOMC, the committee that makes these decisions) meets on September 16-17.
- Whether another foreign crisis is going to threaten the global economy. The most recent threat came from a slowdown in China's economy, but that seemed to recede last week. However, it was revived yesterday, though in a much milder way, when the country unveiled poor figures for its manufacturing sector. A growing important foreign crisis tends to pull down American mortgage rates, while a receding one usually pushes them up.
- Whether commodity prices will recover soon. These have been way down in recent weeks, suggesting a stunted potential for growth in the global economy. Many were relieved when oil prices moved up off the floor last week, but some of those gains were lost yesterday. As we've all seen in recent years, poorly performing economies tend to have lower interest rates across the board.
Today's Economic Data
Two releases of important data are out today, but this week's really big one is Friday's jobs report. One of today's is for August's auto sales, and those will emerge over the next few hours as individual manufacturers reveal their figures.
The big news so far today concerns August's purchasing managers' manufacturing index (manufacturing PMI), which at 53.0 came in much as expected. That's far from a great figure, but it's unlikely to change anyone's vote at that all-important FOMC meeting or move markets much.
Secondary data were mixed. The ISM manufacturing composite index was down to 51.1 in August compared with 52.7 the month before. That was below most analysts' forecasts. Construction spending was up 0.7 percent in July compared with 0.1 percent in June, which itself was significantly revised upwards, and did slightly better than expected.
Markets on Wall Street were generally down soon after opening this morning, mostly on China, but with nervousness about the looming jobs report a secondary factor. So far, falls haven't been as dramatic as they sometimes have been in recent weeks, but hopes of stocks stabilizing must be fading. At the time of writing (soon before 11:00am (ET)), mortgage rates were edging down.
Recent Mortgage Rates
The average rate nationwide for a 30-year fixed-rate mortgage during week ending August 27 was 3.84 percent with an average 0.6 point, according to Freddie Mac's latest weekly survey. The same rate averaged 3.93 percent during week ending August 20, and 3.94 percent seven days before that. This time last year, it was 4.10 percent.
One of the characteristics of periods like this is their volatility. As said previously, there's even less certainty out there now than there usually is.
Whether you decide to float or lock your rate is entirely a matter for you. There's a risk in doing either. Those who are financially conservative may prefer to lock now, even though rates are currently falling. They'd be trading the possibility of a better rate in a few days or weeks for the security of fixing what should still today be a great one, at least in historical terms. Those who enjoy a bet might prefer to float in the hope their rate will fall before they close.
"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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