Mortgage and refinance rates today, May 20, and rate forecast for next week

Today’s mortgage and refinance rates

Average mortgage rates moved moderately higher yesterday. But the movement over the last seven days has been sharper and more damaging. And I am changing my personal rate lock recommendations (below) today.

It’s hard to see why mortgage rates should change direction next week. So, I’m expecting them to rise. However, there’s a chance they could fall back on Friday when an important inflation report is due.

Current mortgage and refinance rates

Should you lock a mortgage rate today?

It’s been a sufficiently bad week for mortgage rates that I can’t ignore the new and unexpected trend. So, today, I shall change my personal rate lock recommendations (below).

I hope to be able to change them back to something more optimistic soon. I still think some appreciable falls lie in their future. But those falls no longer look likely to arrive as quickly as I used to think.

So, my new recommendations are:

• LOCK if closing in 7 days
• LOCK if closing in 15 days
• LOCK if closing in 30 days
• LOCK if closing in 45 days
• FLOAT if closing in 60 days

However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.

What’s moving current mortgage rates

Threats

Two things are currently putting mortgage rates under pressure. The more immediate is the Federal Reserve’s fluid stance over future hikes in general interest rates. The second is the threat from the debt ceiling, which could see the federal government with insufficient money to meet its obligations as soon as Jun. 1.

Yesterday, Mortgage News Daily (MND) called the Fed issue, “A ceiling that actually matters.” It took the view that bond markets — one of which largely determines mortgage rates — are much more influenced by interest rates than government debt.

And that’s probably been true over the last week. But the debt ceiling has the potential to wreak incalculably more havoc on the economy and mortgage rates than a few modest Fed rate increases ever could. And I suspect we’ll increasingly see that in action if investors come to believe that the ceiling will actually be reached.

The Fed

On May 3, immediately after the last Fed rate-setting meeting, investors were left with the impression that the Fed would likely pause — and perhaps end — its rate hiking program from then on. Some even hoped for rate cuts later in the year.

But the economic data since May 3 has not been as rate-friendly as most expected. And many senior Fed officials have recently been suggesting that further hikes are very much on the cards.

Yesterday, Fed Chair Jerome Powell said rates “may not need to rise as much” as previously thought if banks restrict lending further. But that neither endorsed nor dismissed the possibility of another hike after the central bank’s next rate-setting meeting on Jun. 14.

For now, 82.6% of investors still believe the Fed will hold rates steady at that next meeting, according to the CME FedWatch tool. And, to me, that suggests at least some of the rises in mortgage rates we’ve seen this week have been down to concerns about the debt ceiling.

The debt ceiling

The Wall Street Journal (paywall) made that same link between rising bond yields and debt ceiling talks this morning. But, unless politicians on Capitol Hill and in the White House resolve the matter soon, you ain’t seen nothing yet.

To be fair, nobody can be absolutely sure about the consequences of hitting the debt ceiling. It’s never happened before.

But the vast majority of economists predict something between an economic catastrophe and Armageddon. The White House economics team recently estimated that a prolonged default could cause 8 million job losses and a halving of the value of American stock markets.

Again, nobody can be sure what the implications would be for mortgage rates. But most economists think all borrowing costs would spike, perhaps to levels not seen for decades. And I see no reason to assume that mortgage rates would be excluded from that.

So, even if MND is right that the Fed has this week been the ceiling that actually matters, that may not be the case for long.

Next week’s inflation report

Next Friday brings the personal consumption and expenditures (PCE) price index for April. And the Fed says that’s its favorite inflation report.

Economists polled by MarketWatch were forecasting overnight that the closely watched “Core PCE” figures, which exclude volatile food and energy prices, would hold steady that month. That means a 0.3% rise month over month and a 4.6% rise year over year.

If Friday’s actual figures come in below those expectations, mortgage rates could fall. If they’re higher, mortgage rates might rise. And if they’re close to the forecasts, those rates might barely move.

Economic reports next week

We just explored what by far the most important economic report next week, the PCE price index, might bring. But there are other things besides reports to look out for.

Both are connected to the Fed. The first lands on Wednesday and comprises the minutes of the last meeting of the central bank’s rate-setting body, the Federal Open Market Committee (FOMC). Investors always study these closely and sometimes react to their contents.

The second is continuing public pronouncements on future rate hikes by top Fed officials. Seven such speaking engagements are scheduled for the first four days of next week. Remarks made during those could affect mortgage rates, just as they have over this week.

Here are the major economic reports that will appear next week. Those most likely to affect mortgage rates are in bold. Others probably won’t have much impact unless they contain shockingly good or bad data.

• Tuesday — May purchasing manager indexes (PMIs) for the services and manufacturing sectors from S&P (“flash,” meaning initial, readings). Plus new homes sales in April
• Wednesday — FOMC minutes (see above)
• Thursday — Gross domestic product in Q1/23 (second reading) and April pending homes sales. Plus initial jobless claims for the week ending May 20
• Friday — April PCE price index. Plus personal income and spending figures and durable goods orders, all for April. Also, May’s consumer sentiment index

Wednesday and Friday could be important for mortgage rates. But don’t forget the many Fed officials who will be speaking in public next week.

Time to make a move? Let us find the right mortgage for you

Mortgage interest rates forecast for next week

My monthslong optimism over mortgage rates has been replaced by a pessimistic mood, at least for the next month or two. And I reckon those rates are more likely to rise than fall over the next seven days.

If the debt ceiling crisis is averted, Fed speakers begin to be more doveish and Friday’s inflation report is better than expected, I could be wrong. So, let’s hope I am.

Meanwhile, I still think there’s a good chance of sustained lower mortgage rates later in the year. Just not as soon as I’d hoped.

How your mortgage interest rate is determined

Mortgage and refinance rates are generally determined by prices in a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.

And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble. But inflation rates can undermine those tendencies.

Your part

But you play a big part in determining your own mortgage rate in five ways. And you can affect it significantly by:

1. Shopping around for your best mortgage rate — They vary widely from lender to lender
2. Boosting your credit score — Even a small bump can make a big difference to your rate and payments
3. Saving the biggest down payment you can — Lenders like you to have real skin in this game
4. Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
5. Choosing your mortgage carefully — Are you better off with a conventional, conforming, FHA, VA, USDA, jumbo or another loan?

Time spent getting these ducks in a row can see you winning lower rates.

Remember, they’re not just a mortgage rate

Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So, focus on your “PITI.” That’s your Principal (pays down the amount you borrowed), Interest (the price of borrowing), (property) Taxes, and (homeowners) Insurance. Our mortgage calculator can help with these.

Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.

But there are other potential costs. So, you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!

Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) that lenders will quote you. Because that effectively spreads them out over your loan’s term, making that rate higher than your straight mortgage rate.

But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:

Down payment assistance programs in every state for 2023

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The result is a good snapshot of daily rates and how they change over time.