If you’re shopping for a mortgage rate today, you know that are ultra-low.
Buyer of homes and refinancing households have access to mortgage rates prior generations could only dream about. Against the historical 30-year average of 8.375%, today’s mortgage rates are less than half of that figure.
Today’s low interest rates mean that today’s owners of homes pay less mortgage interest each month as compared to history; and build their home equity more quickly.
However, mortgage rates can’t stay low forever and today’s sub-4 percent rates are too low to last long-term.
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Mortgage Rates Rose 0.53% In One Week
Mortgage rates are based on the price of mortgage-backed securities (MBS). Mortgage-backed securities are bonds and, similar to stocks, they change in price all day, every day.
This is why you can’t lock mortgage rates from yesterday at the same price today — the cost of the underlying security has changed, which has caused the price of the mortgage rate to change.
The market didn’t always work like this. Many years ago, mortgage lenders set their rates at the start of the day or the week, and left those rates in place until the start of the next day or week. Shopping for a mortgage rate was easy because rates were stable and unchanging for long periods of time.
However, in recent years, banks have made fewer loans against their own assets and have made more loans secured by the government — specifically, via Fannie Mae or Freddie Mac; or the Federal Housing Administration, the Department of Veterans Affairs, or the U.S. Department of Agriculture.
Loans secured by the government are bundled into mortgage-backed securities and, therefore, subject to the whims of Wall Street. Banks can’t make mortgage rates on Monday and leave them in place through the weekend.
Mortgage rates change as MBS prices change and, sometimes, MBS prices can change quickly.
Take last June, for example.
After a series of stronger-than-expected economic reports, the Federal Reserve suggested that it may begin tapering its third round of quantitative easing — a program known as “QE3” by which the Fed worked to actively suppress current mortgage rates.
The program, sized at $85 billion monthly, had the nation’s central banker purchasing $45 billion in Treasury securities and $40 billion is mortgage-backed securities in the open market. The added demand from the Fed was meant to drive bond prices up which, in turn, drives bond interest rates down.
The September 2012 launch of QE3 had coincided with the lowest 30-year fixed rate mortgage rates in history and, prior to the Fed’s suggestion that QE3 would end, rates had returned to within 0.02 percentage points of an all-time low.
Low rates reversed overnight — literally.
Within one week of the Fed’s statement, had climbed 0.125 percentage point; and rates did the same the week after. And, the week after that.
Then, capped by a 0.53 percentage point increase at the end of June, rate shoppers found 30-year mortgage rates up more than an entire percentage point in less than 8 weeks, marking the worst 2-month performance for mortgage rates in history.
Ultimately, mortgage rates receded, but not until an entire year had passed.
This is why home buyers and rate shoppers should avoid trying to “time the market”. Wall Street moves fast and can change MBS pricing faster than consumers are capable of reacting. Mortgage rates can rise quickly, leaving low rates behind you forever.
Today’s mortgage rates are a gift. If you’re shopping for a loan, consider locking something in. Rates could jump anytime, and without advance warning.
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How To Avoid Mortgage Interest Rate Spikes
To protect against mortgage interest rate spikes, and to lock today’s low mortgage rates, consumers should behave like Wall Street investors — be forward-thinking, attentive, and ready to act.
There are also a number of strategies you can employ to find your ideal rate at a low price.
Lock Your Mortgage Rate Early
Nearly every mortgage lender offers its customers the opportunity to lock and confirm a mortgage rate. The lender offers rate locks in 15-day increments, and it’s up to the borrower to decide when to actually “make the lock”.
Sometimes, mortgage shoppers like to wait for the “perfect day,” to lock a rate. Unfortunately, trying to time the market rarely works out for the borrower. This is because, by the time the borrower is aware that mortgage rates are rising, it’s often too late to get locked — lenders work with hundreds of clients and it’s hard to execute everybody’s locks at once.
Because rate changes are often unforeseen and quick, even if you pay a premium to lock for 45 days or 60 days, it can be better than “waiting it out” to get your loan to within 30 days of closing, when mortgage rates are often cheapest.
You may pay 0.125 percentage points more for a 45-day lock, but rates can move by 0.50 percentage points in a week.
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Seek Advice
As a consumer, it can be hard to track the mortgage market and current mortgage rates all day long. Sometimes, it’s better to leave this task to your lender.
Remember, your bank has an interest in earning your business and it’s easier to earn your business when the bank provides lower mortgage rates than the competition.
Banks can’t control what the market will do in the future, but your lender can often offer good advice.
For example, your lender may recommend that you make a lock prior to a specific economic report’s release; or ahead of an upcoming Federal Open Market Committee meeting.
Ultimately, the decision to lock your mortgage rates, and when to do it, is yours as a consumer. However, your lender can help you make a more informed decision which can help you get access to lower mortgage rates, lower loan fees, or both.
Watch The Market Trends
Mortgage-backed securities are unpredictable, but they tend to move along trend lines. Mortgage rates may rise for a series of days, or fall for a series of days. If mortgage rates fell yesterday, for example, they may be likely to fall today.
Mortgage rates for many different loan types sometimes follow this pattern. It’s as true for as it is for rates, conventional mortgage rates, and loans from the USDA.
Examine charts showing mortgage rates over the last 5 days, one month, and one year. There’s no guarantee that rates will follow an exact path but long-term trends can be helpful in identifying where mortgage rates may go next.
Check Today’s Mortgage Rates
Mortgage rates are unpredictable. Some days they rise, some days they fall, and some days they stay the same. As a consumer, the best approach to locking mortgage rates is to be aware of the market and to use all of the tools at your disposal.
Get today’s mortgage rates and see what you can save. Rates are available online at no cost, with no obligation to proceed, and with no social security number required to get started.
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