Today’s mortgage and refinance rates 

Average mortgage rates inched lower yesterday. But that followed six days without a fall, five of which showed rises. And averages remain noticeably higher than they were early in the New Year when they were at or near their all-time low. Still, they remain amazing bargains by any standards.

Unfortunately, there are still no reliable trends in these rates. But there are enough danger signals for me to suggest caution.

So I’d lock my rate as soon as possible, certainly if I were due to close in the next 30 days. Read on for details.

Find and lock a low rate (Jan 16th, 2021) Find and lock a low rate (Jan 16th, 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?

Probably. But that’s what I said last week. And mortgage rates have fallen — though only a little — since then.

Personally, with rates in their current state of flux, my instinct is to be cautious. That’s why I’d lock as soon as possible.

But it’s perfectly possible that those rates will fall further, perhaps even setting a new all-time low. And, if you’re feeling brave, nobody could blame you for playing wait-and-see. Just be aware of the stakes you’re gambling with.

But, whatever your inclination, read the next section before making your choice. At least you’ll be making your decision based on some information. And, in the meantime, my personal recommendations are:

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

What’s moving current mortgage rates

I’ve been writing a lot over the last week or so about the two conflicting forces currently acting on mortgage rates. On one side is the economic damage wreaked by the pandemic, which is trying to drag rates lower. On the other is the prospect of much higher government spending and borrowing, which acts to push them upward.

Government borrowing

On Tuesday, the US Treasury auctioned 10-year bonds worth $38 billion. And there was surprisingly strong demand for those. Indeed, it was this auction that stemmed rising bond yields and mortgage rates (those rates usually shadow those yields).

But one auction’s outcome is a poor predictor of the next’s. And you’d be brave to the point of foolhardiness to assume that’s the end of the upward pressure.

Thursday saw President-elect Joe Biden unveil a $1.9 trillion pandemic stimulus (or relief) plan. However, his party lacks the 60 Senate seats needed to push the enabling legislation through.

But many expect $1+ trillion in new borrowing. And it’s likely more will follow to fund infrastructure and other spending plans.

So high demand for government borrowing is very likely eventually to lead to higher yields on Treasury bonds. And that should act to push up mortgage rates.

COVID-19

Meanwhile, the pandemic continues to rage at alarming levels. According to The New York Times, “At least 3,744 new coronavirus deaths and 240,925 new cases were reported in the United States on Jan. 15.”

Naturally, that’s having a severe economic impact. In an understated way, Comerica Bank Chief Economist Robert A. Dye, Ph.D. yesterday suggested:

U.S. economic data from December and early January remained consistent with much cooler growth in overall economic activity compared with the historic rebound in third quarter GDP.

Comerica Economic Weekly newsletter, Jan. 15, 2021

But that “cooler growth” could turn out to be negative growth this quarter, and there’s a real possibility of a double-dip recession. Yesterday’s retail sales figures showed falls for the third consecutive month. And the most recent monthly and weekly employment data have been dire.

Yes, the vaccination drive will help. But that’s got off to a slow start. And we’re probably looking at several months before there’s any prospect of a return to near-normal economic activity. All the while, this will be a drag, keeping mortgage rates lower than otherwise.

So will government borrowing push mortgage rates higher? Or will the pandemic’s economic effects drag them downward? That’s what nobody currently knows.

Economic reports next week

Next Monday is Martin Luther King Jr. Day. And markets will be closed so we won’t be publishing our daily update on mortgage rates. But we’ll be back on Tuesday.

Next week is a relatively quiet one for economic reports:

• Thursday — Weekly new claims for unemployment insurance. And December housing starts and housing permits
• Friday — December existing home sales

It would be surprising if any of those (except, perhaps, the jobless figures) were to have much effect on markets.

Find and lock a low rate (Jan 16th, 2021)

Mortgage interest rates forecast for next week

Nothing’s changed. And mortgage rate movements remain inherently unpredictable. They really could go either way, though probably not very far.

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