July 31, 2015 05:22 AM Eastern
Mortgage Rate Lock Recommendation
July 30 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
Today's economic news is dominated by publication of the second quarter's GDP figure, which showed America growing at an annualized rate of 2.3 percent during that period. The annualized rate for the first quarter was revised up to +0.6 percent from the previously thought -0.2 percent, meaning there was no recession during the first three months of 2015. While positive, the second quarter result was at the lower end of expectations, so is unlikely in itself to have a large effect on mortgage rates. Meanwhile, new weekly jobless claims were better than anticipated at 267,000, up from 255,000 seven days ago. That rise was no surprise, given last week's number was the lowest in 42 years.
Some analysts this morning were suggesting that, taken together, these data might increase the likelihood of the Federal Reserve hiking its interest rates in September rather than waiting until later in the year, a belief that might edge mortgage rates up today. The Federal Open Markets Committee (FOMC), which is responsible for setting the Fed's rates, met Tuesday and yesterday, and its post-meeting statement suggested it saw a succession of these sorts of numbers as a trigger for action.
Regular readers will know the importance of 10-year U.S. Treasury bonds to the mortgage market. These compete for the same investors' money and fulfill similar roles in investment portfolios, which is why their yields and rates shadow each other closely: when one goes up or down, the other almost always does the same. Yesterday, those bond yields inched up for the second consecutive day, closing at 2.29 percent, compared with 2.26 percent the day before. Yields rose further this morning on the GDP and employment news, but by about 10:00 a.m. ET, were falling, though slowly.
The reason for that so-far very slight fall isn't immediately apparent. Although the Shanghai Composite Index closed very slightly lower, after gaining 3.4 percent yesterday, the Chinese stock market crisis seems to have gone away again -- at least for now. At the time of writing, it seems probable these yields will drift up and down during the day, and close roughly where they started.
Freddie Mac published its weekly mortgage rate survey this morning, and the average rate for a 30-year fixed-rate mortgage during week ending July 30 was 3.98 percent with an average 0.6 point. The same rate averaged 4.04 percent during week ending July 23, and 4.09 percent seven days before that. Seeing that particular rate beginning with a "3" again, after six weeks when a "4" was in that spot, will surprise some. In a statement, Freddie chief economist Sean Becketti explained what readers of this rate lock recommendation already know:
Monday's 8 percent decline in Chinese stock prices triggered similar -- though smaller -- sell-offs in global equity markets. The associated flight to quality drove U.S. Treasury yields down nearly 5 basis points. Accordingly, 30-year fixed-rate mortgages fell 6 basis points to 3.98 percent. The mortgage rate has bounced between 3.98 and 4.09 percent since the first full week of June, falling a bit when events overseas take a turn for the worse and rising when the clouds appear ready to part. With no clear direction coming from the Fed this afternoon, we expect more of the same in coming weeks.
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, as is happening this morning — 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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