Today’s Mortgage Rates and Lock Recommendation
Mortgage Rates Today for June 22, 2021
Today’s Mortgage Rates
|Conforming 15-Year Fixed||2.25%||0.00%|
|Conforming 30-Year Fixed||2.83%||-0.01%|
|FHA 15-Year Fixed||3.52%||-0.23%|
|FHA 30-Year Fixed||3.70%||0.19%|
|VA 15-Year Fixed||2.61%||0.12%|
|VA 30-Year Fixed||2.62%||0.02%|
What’s Affecting Mortgage Rates Today?
Today’s mortgage rates opened mostly higher today. This is primarily because some Fed governors spoke and indicated that the Fed may taper off their purchases of long-term Treasuries and mortgage-backed securities (MBS). When the government stops buying these financial instruments, demand for them will fall and prices will too. And when bond prices are lower, interest rates are higher (see the explanation below “How Bonds Work”).
The only scheduled economic news today is the Existing Home Sales report. Sales dropped (for the fourth straight month) to an annualized rate of 5.8 million. Falling sales don’t mean a soft economy, however. In this case, the cause is low housing inventory. The median existing-home price increased year-over-year by 23.6% in May 2021. Properties typically sold in 17 days. That’s bad news for mortgage rates because it’s inflationary.
Should You Lock Your Mortgage Rate Today?
Locking isn’t always a no-brainer for longer periods, even in a rising rate environment, because locking a loan costs money. The interest rate you’ll get with a 7-day lock is lower than that of a 15-day lock, and so on. Locks longer than 30 days often come with up-front fees (.5% is typical for 60 days). If you can get a longer lock at a decent cost today, you should probably go for it.
What Does it Mean to “Lock” Your Mortgage?
When you apply for a home loan, your lender gives you documents with that day’s interest rate on them. But interest rates change all the time. In fact, mortgage rates can change more than once a day. So you don’t know what your actual mortgage rate will be until you lock it in. Once you lock, you’ll close at that rate as long as your application does not change significantly and you close within your lock period.
Lock periods range from 7 days to 180 days or more. Shorter lock periods are less risky to your lender and less expensive to you. Most lenders quote rates with 30-day locks. Until you lock your loan, you are said to be “floating.” You cannot close your loan until you lock.
Are Mortgage Rates Going Up or Down?
Mortgage rates are trending higher. Every well-known mortgage rate forecast predicts interest rates rising in 2021. As the economy recovers from the pandemic, expect prices to surge, inflation to become a concern, and mortgage rates to increase.
If you can get your mortgage sooner rather than later, you’ll probably get a much better rate than if you wait until 2022.
Financial Markets and Today’s Mortgage Rates
Today’s indicators are all over the place. There are some extreme but offsetting position and thigs could go either way. There is a slight bias toward lower mortgage rates. Keep an eye on oil prices and the 10-year Treasury yields if you are contemplating a rate lock. Here are the data influencing mortgage rates today:
Major stock indexes opened slightly higher this morning. Stock market prices are reasonably good predictors of interest rates. When stocks increase, the economy is heating up. This usually leads to higher mortgage and other interest rates. Falling stock prices normally correlate with lower interest rates. This morning’s prices are slightly bad for today’s mortgage rates.
The 10-year Treasury note increased by .01% to 1.49%. Yields on 10-year Treasuries usually move in the same direction and degree as mortgage rates, so today’s move is slightly bad for mortgage rates.
Oil prices fell $.12 to $73.31 per barrel. That’s neutral for mortgage rates. Because oil is necessary for most economic activity in the US, rising oil prices trigger fears of inflation. This often causes interest rates to increase, while falling oil prices generally cause interest rates to drop.
The price of gold edged $6 lower to $1777 per ounce. Rising gold prices often indicate economic weakening and lower interest rates, but rates often increase as gold prices fall. This change is neutral for today’s mortgage rates.
Fear and Greed
CNNMoney’s Fear & Greed Index measures how optimistic or pessimistic market participants are by using a variety of formulas. When investors are optimistic or greedy, mortgage rates tend to increase. And when investors become more fearful, interest rates fall. Today’s index rose 1 point to a “fearful” 33. The scope and direction of this movement are slightly bad for mortgage rates.
This Week’s Economic Schedule
This week brings a handful of important releases, the most important day being Friday.
No scheduled releases.
Existing Home Sales for May tracks the US housing sector strength and can point to future demand for mortgages and pressure on mortgage rates. Experts expect that sales declined to an annual rate of 5.68 million. More sales are usually bad for mortgage rates and fewer sales are good — if they indicate a slowing economy. However, this decline is mainly due to low inventory and does not reflect demand, so investors may ignore the data this month.
May’s New Home Sales report reveals sales of newly-constructed houses in the US. Economists predict that sales increased to an annualized rate of 873,000 homes. Higher numbers would be good for the economy but bad for mortgage rates. And fewer sales would be good for mortgage rates, indicating less demand for home loans.
Last week’s unemployment claims have been predicted to fall to 380,000. More claims would be bad for the economy but good for mortgage rates. Fewer claims would be good for the recovery but possibly lead to inflation — bad for mortgage rates.
May’s Durable Goods Orders report is fairly important. It tracks orders for big-ticket items like cars and planes. Increasing orders are good for the economy but can trigger inflation fears, lower bond prices, and higher mortgage rates. The experts predict a 2.7% increase. Bigger numbers would be bad for bond yields and mortgage rates, while lower numbers would be good.
Consumer spending, personal income, and the Consumer Price Index track inflation at the consumer level of the economy. It’s a significant report. Economists predict that personal income fell 2.7% in May while consumer spending increased .3% and the CPI rose .6%. Higher numbers would be bad for mortgage rates. Lower ones would indicate economic cooling, and that would be positive for mortgage rates.
In addition, the University of Michigan’s Index of Consumer Sentiment (preliminary reading for June) gauges consumer confidence in the economy. The index is expected to edge up slightly to 86.6. Higher consumer confidence means more spending and possible inflation, so lower numbers could be better for mortgage rat
Why Mortgage Rates Change
In general, a strengthening economy causes interest rates (including mortgage rates) to increase. That’s because an expanding economy can increase the rate of inflation, and investors demand higher returns when they are concerned about inflation.
When the economy weakens, investors become less worried about how much their money earns and more worried about retaining their principal. So demand for safe investments like bonds increases, driving their prices up and interest rates down.
The example below illustrates how the economy causes prices for bonds and mortgage-backed securities (MBS) to increase or decrease – and how yields (interest rates) respond when the price of a bond or MBS changes.
How Bond Prices and Interest Rates Work
Bond issuers create $1,000 bonds paying a specific interest rate. The issue price, $1,000 per bond, is often called “par.” The interest rate for that bond is called the “coupon rate.” If you buy a $1,000 bond paying 5%, your yield would be 5% — the same as the coupon rate.
Your interest rate: $50 interest / $1,000 bond price = 5%
However, bonds don’t stay at par pricing — they trade similarly to stock shares, and their prices rise and fall all the time. These price changes are caused by events that impact the global economy. Events that point to economic expansion and possible inflation cause the demand for bonds to fall and rates to increase.
On the other hand, events that indicate economic instability or failure cause investors to desire safer investments like bonds and MBS. Demand for these instruments causes their prices to rise and rates to fall. The examples below illustrate the upward and downward interest rate movements in response to economic conditions.
When Interest Rates Fall
Suppose that after you buy a bond at par from the issuer, the economy becomes troubled. Say it’s because of a war overseas or a global pandemic. Investors demand safe places to put their money and 5% becomes a highly desirable interest rate. You sell your $1,000 bond to an investor for $1,500. The buyer gets the same $50 a year in interest that you were getting. It’s still 5% of the $1,000 coupon. However, the yield drops. Your buyer’s interest rate: $50 annual interest / $1,500 bond price = 3.33%
When Interest Rates Rise
The opposite happens when the economy gets better. Suppose that after you purchased your $1,000 bond, the pandemic is resolved with the invention of a vaccine and the warring countries overseas come to terms. The stock market comes roaring back, and 5% doesn’t look so great anymore. Investor demand falls for your bond and you can only sell it for $750. The buyer pays less and enjoys a higher yield.
Your buyer’s interest rate: $50 annual interest / $750 bond price = 6.67%
What Are Mortgage-Backed Securities (MBS)?
A mortgage-backed security is an investment similar to a bond. The security is backed by a bundle of home loans bought from mortgage lenders that issue them. Investors in MBS receive payments similar to bond coupon payments.
Most mortgage-backed securities are issued by Fannie Mae, Freddie Mac, and Ginnie Mae. These companies were supported by the government to make homeownership more accessible to consumers. Fannie Mae, Freddie Mac, and Ginnie Mae also set guidelines that banks and lenders must follow in order to protect the investors who buy MBS.
MBS are not as safe as US Treasuries, so their yields tend to run a little higher. However, they are widely viewed as safe investments and their yields (rates) tend to move in the same direction as those of Treasuries.
What Is a Mortgage Rate Float-Down and Do You Want One?
If deciding to lock or float your mortgage rate stresses you out, there is another option — the float-down. A float-down allows you to lock in a mortgage rate; but if rates drop before you close on your home loan, you get to close at the lower rate.
Float-downs are not free — you either pay an up-front fee for the privilege or accept a slightly higher interest rate.
Not all float-downs are the same. Some lenders only let you exercise the float-down option the day they draw your closing documents. Others allow you to lock in a lower rate any time during the process.
Still, others require the new rate to be at least a certain percentage lower than your locked rate before they let you change to the lower rate — .125 to .25 percent is typical.
Read your documents carefully, and understand what a float-down will cost you and what you’ll get for your money.