Today’s mortgage and refinance rates 

Average mortgage rates fell again yesterday. But only by the smallest measurable amount.

Those rates would likely have risen this week were it not for the scrapping of the “adverse market refinance fee,” which applied to most Fannie and Freddie refinances. The abolition of that brought the average rate a little lower. So, I’m guessing average mortgage rates might rise modestly next week. But that’s based only on my interpretation of the mood in markets. Read on to discover a possible threat that could bring sharper rises, starting next Wednesday.

Find and lock a low rate (Jul 24th, 2021)

Current mortgage and refinance rates 

Find and lock a low rate (Jul 24th, 2021)

COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

On Thursday, Freddie Mac’s weekly report on mortgage rates showed them within striking distance of the all-time low, which was set in January. (More, including numbers, below.) You can interpret that in one of two ways. You can say to yourself:

1. “Excellent! Maybe they’ll go down further. I’ll wait to lock my rate”
2. “Excellent! A bird in the hand is worth two in the bush. So, I’ll lock now and secure one of the best deals in history. And, that way, I’ll avoid the risk of their rising again”

To be honest, either of those is a reasonable response. But I’d favor the second. That’s partly because I’m a pretty cautious sort of guy. But also because I still think mortgage rates are a bit more likely to rise than fall soon.

Based on my preference for option 2, my personal recommendations remain:

• LOCK if closing in 7 days
• LOCK if closing in 15 days
• LOCK if closing in 30 days
• LOCK if closing in 45 days
• LOCK 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 be guided by your gut and your personal tolerance for risk.

What’s moving current mortgage rates

You and I spend a lot of time agonizing over the likelihood of future scenarios and trying to weigh their possible impact on mortgage rates. So let’s take some time out to look at where things stand from a practical standpoint.

But, first, please bear with me over a bit of wonkish jargon. Differences in percentages can be measured in “basis points.” And a basis point is one-hundredth of 1%. So yesterday’s fall in mortgage rates was 1 basis point, according to Mortgage News Daily’s numbers, which is essentially undetectable to a consumer.

People in finance use basis points for a good reason. If I were to say, “Mortgage rates rose 1% yesterday,” you wouldn’t know whether that rate had jumped to 3.78% from 2.78% (2.78% + 1% = 3.78%) or whether it had inched up to 2.801%, which is 2.78% + (1% of 2.78%) or 100 basis points. It could be either.

Mortgage rates are incredibly low

So, with that knowledge, let’s look at some numbers. The lowest weekly rate for a 30-year mortgage recorded by Freddie Mac, since it began tracking them 50 years ago, was 2.65%, which occurred on Jan. 7, 2021. Those rates then climbed. And they peaked at 3.18% on April 1. But, since then, they’ve drifted down most weeks. And this week, on July 22, they stood at 2.78%.

Wow! That 2.78% is just 13 basis points higher than the all-time low. And it’s 40 basis points lower than this year’s high. If we have just a couple more days of the sharper falls we’ve seen over the last couple of weeks, we might reach it — or even beat it.

But wait. An all-time low is just a number. And chasing it can be a fool’s errand. How many people do you think, on Jan. 7, chose to hang on in case rates went even lower than 2.65%? Plenty, I’d guess. And they all ended up locking a higher rate. Maybe 2.79%, which was where it stood a week later on Jan. 14.

You see my point. If you can get a much better deal than you could ever have dreamed of a year ago, when Freddie’s monthly average was 3.02%, or 20 years ago (6.49%) or 40 years ago (16.82% — No, really. That’s not a typo) then maybe chasing an artificial number is a fruitless pursuit.

Fed’s imminent threat to low mortgage rates

Regular readers will think I’m a broken record. But I have to explain yet again why the Federal Reserve is a threat to low mortgage rates. And why it’s just possible that the Fed could cause them to rise sharply from next Wednesday (July 28).

First, the why

The Fed is currently buying mortgage-backed securities (MBSs, the bonds that actually determine mortgage rates) at a rate of $40 billion a month. And that’s keeping those rates much lower than they otherwise would be.

But the Fed is coming under increasing pressure, both internally and externally, to “taper” (gradually to slow and eventually to stop) its buying of MBSs and similar assets. Unfortunately, MBSs are under the earliest threat because the Fed is acutely aware of how hot the housing market is currently running, partly due to its subsidizing of mortgage rates.

And, secondly, the when

The Fed’s powerful monetary policy body is called the Federal Open Market Committee (FOMC). And it will be meeting next Tuesday and Wednesday. There will be a statement and some data released at 2 p.m. (ET) on Wednesday followed by a news conference 30 minutes later.

And there’s a real possibility those could contain an announcement about it tapering MBS purchases. It’s probably not likely but it’s certainly possible. So, if you’re still floating then, you should probably look out at those times for any such announcement. Because, if one comes, it could quickly lead to higher mortgage rates. At least, it did the last time the Fed announced a similar taper, in 2013.

Economic reports next week

There are a few heavy hitters on next week’s calendar of economic reports. First up, is Thursday’s first estimate of gross domestic product (GDP) for the second quarter of 2021 (Q2). Then Friday brings the others: the employment costs index for Q2; June personal income and consumer spending; and core inflation for the same month.

None of the other economic reports listed below is likely to cause much movement in markets unless it includes shockingly good or bad data. Moreover, regular readers will know that investors have been ignoring most economic reports in recent months. So the effects of the following may be different from usual:

• Monday — New home sales in June
• Tuesday — June durable goods and nondefense capital goods orders. Plus July consumer confidence index
• Wednesday — FOMC (Fed) announcement and news conference (2 p.m. and 2:30 p.m. (ET) respectively)
• Thursday — Q2 GDP (first estimate). Plus weekly new claims for unemployment insurance to July 24
• Friday — June personal income, consumer spending and core inflation. Plus Q2 employment cost index. Also July consumer sentiment index

Markets are fixated on inflation and how the economic recovery is going. So all the ones I mentioned in this section’s opening paragraph, plus consumer sentiment and confidence indexes, could affect mortgage rates.

Find and lock a low rate (Jul 24th, 2021)

Mortgage interest rates forecast for next week

I suspect that mortgage rates may drift a little higher this week. But that’s little more than a gut feeling. And they could move a lot higher if the FOMC announces next Wednesday that it will taper its purchases of MBSs (see above).

Mortgage and refinance rates usually move in tandem. And a gap that had grown between the two has been largely eliminated by the recent scrapping of the adverse market refinance fee.

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.

Your part

But you play a big part in determining your own mortgage rate in five ways. 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, FHA, VA, USDA, jumbo or another loan?

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

Remember, it’s 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) you’ll be quoted. Because that effectively spreads them out over your loan’s term, making that higher than your straight mortgage rate.

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

Down payment assistance programs in every state for 2021

Mortgage rate methodology