Today’s mortgage and refinance rates 

Average mortgage rates rose again yesterday. The week started out so well, with two worthwhile falls. But they were followed by three rises. And rates closed on Friday a little higher than they did seven days earlier.

Absent something momentous and unexpected occurring, I can’t see the overall upward trend ending anytime soon. And I reckon mortgage rates might rise further next week. Of course, I hope I’ll be proved wrong. But sunny optimism is in short supply right now.

Find and lock a low rate (Mar 6th, 2021)

Current mortgage and refinance rates 

Find and lock a low rate (Mar 6th, 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?

I’d lock my rate as soon as I could if I were you. Yes, there’s always a chance of something major turning up that changes everything. But I can’t spot any such savior on the horizon. And it seems much more likely that there will be further rises ahead.

So my 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

We’ve been predicting higher mortgage rates for a while. But we thought they were more likely to kick in later in 2021.

That’s when we expected the post-pandemic economic recovery to really gain traction. And a strong economy and higher rates go together like a horse and carriage — and much more so than love and marriage do.

But some economic indicators are already looking stronger. And, on Tuesday, President Joe Biden revealed that America is on track to offer all adult residents a COVID-19 vaccination by May, much earlier than previously thought.

So we shouldn’t be surprised that mortgage rates would be inching higher at this point. But they’re doing more than inching. And that’s down to something else.

The inflation boogeyman

What’s mostly driving mortgage rates higher is a fear of inflation. Investors are worried that a strong recovery coupled with high government borrowing will cause the economy to overheat.

And, classically, an overheating economy generates high levels of inflation. Importantly, that matters to those who invest in long-term, fixed-rate assets such as Treasury bonds and mortgage-backed securities. They don’t want to be left holding 2021, 3% mortgages sometime in the future when inflation is running at 10%. Because they’d be making a loss.

And we reminded you last week that fear of inflation and high rates is anything but irrational:

Between 1978 and 1990, the average rate for a 30-year, fixed-rate mortgage never dipped below 10%, measured annually. And, in October 1982, that rate peaked at 18.45%, according to Freddie Mac’s archives.

Operation Twist

Investors want the Federal Reserve to promise to implement Operation Twist if necessary. This is a process that the Fed used back in the 1960s and ’70s, and most recently in 2011 and ’12. And it involves it selling its short-term assets and buying long-term ones. That shifts much of the inflationary risk from the private sector into the public one.

But, on Thursday, Federal Reserve Chair Jerome Powell avoided committing his organization to reviving Operation Twist. All he promised was to continue to act as necessary to keep the recovery on track and in balance. And Thursday and Friday’s rises in mortgage rates were largely a reaction to his remarks.

Might we still see falls?

Yes, the possibility of markets changing direction never goes away. But it would likely take some seriously bad economic news to trigger falling mortgage rates.

The most likely scenarios are:

1. The emergence of a vaccine-resistant strain of SARS-CoV-2, the virus that causes COVID-19
2. A collapse in stock markets — Unlikely, but not unthinkable

However, what are the chances of one of those (or something similarly devastating) arising between now and your closing date?

Economic reports next week

It’s a relatively quiet week for economic reports. True, Wednesday brings the February consumer price index (CPI). And we’ve already established that investors are currently obsessed with inflation. But it’s future inflation that bothers them. And few expect any fireworks from these figures.

Markets may well shrug off the other reports this week. However, any data can have an impact if it varies significantly from expectations.

Still, here are next week’s main economic reports:

• Tuesday — February small-business index from the National Federation of Independent Business
• Wednesday — February CPI and core CPI
• Thursday — Weekly new claims for unemployment insurance.
• Friday — February producer price index for final demand (another predictor of inflation). Plus March consumer sentiment index (initial reading)

Fed officers won’t be speaking in public this week. And that’s because they always remain silent during the run-up to their policy (Federal Open Market Committee) meetings. So they won’t be antagonizing investors. But they won’t be reassuring them, either.

Find and lock a low rate (Mar 6th, 2021)

Mortgage interest rates forecast for next week

We may well see some modest falls next week. But, overall I expect those to be outweighed by rises. Unfortunately, I can’t find grounds for optimism right now.

Mortgage and refinance rates usually move in tandem. But note that refinance rates are currently a little higher than those for purchase mortgages. That gap’s likely to remain constant as they change.

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 2020

Mortgage rate methodology