Today’s mortgage and refinance rates 

Average mortgage rates edged lower yesterday. Because markets shrugged off that day’s better-than-expected employment situation report. More on that below.

Once again, I’m guessing that mortgage rates may barely move this week. There are no headline-grabbing economic reports on the calendar. And, right now, there’s nothing obvious that I can see that’s likely to push them far in either direction.

Find and lock a low rate (Jul 3rd, 2021)

Current mortgage and refinance rates 

Find and lock a low rate (Jul 3rd, 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?

Last week was a good one for mortgage rates. But they fell by only 4 basis points over five business days, according to Mortgage News Daily’s data. And a basis point is just one-hundredth of 1%. There’s no risk of those still floating their rates getting fat on the lower monthly payments or closing costs those sorts of falls deliver.

But there is a risk of their getting caught up in a sudden rise in mortgage rates, which is a real possibility. Even without that sharp increase, Fannie Mae is expecting these rates to average 3.2% for a 30-year, fixed-rate mortgage in the first quarter of 2022. Freddie Mac is expecting 3.5%. And the Mortgage Bankers Association reckons it will be 3.7%. Whomever you believe, most experts think mortgage rates are going to head upward.

And, to my mind, the risks of floating outweight the possible rewards. So, 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

There was a good essay in The New York Times yesterday by Julia Coronado, who used to be an economist at the Federal Reserve Board of Governors and is now a professor at the University of Texas at Austin. She explored the new type of economic recovery we’re now seeing, which is based on more generous support to individual Americans and businesses. And she gave credit to both the Trump and Biden administrations for adopting such policies.

Incidentally, she also explained why yesterday’s excellent employment situation report didn’t set off fireworks in markets:

The more conventional policy advisers worrying, very vocally on TV, about inflation may be right that we will see more persistent inflationary pressures, but markets broadly are voting with the Fed’s assessment that the heat of this moment will prove largely transitory. Interest rates are still low, with little indication the creditworthiness of the United States is in question.

— NYT, “Here’s Why This Economic Recovery Is Putting 2009’s to Shame” (paywall), July 2, 2021

In other words, enough investors are content to give the Fed its head for now. And they believe the central bank will see its current policies through.

Not out of the woods

For months now, that’s been true for bond markets generally — and the one that determines mortgage rates in particular. That’s why there’s been only occasional and limited volatility in those rates.

But trading that’s based on faith in an institution is inherently fragile. And it might take something quite small to entirely change the mood: A straw that breaks the camel’s back.

To mix metaphors, what would happen if the little Dutch boy were to take his finger from the Fed’s dike? We can’t be sure. But we may well see the Fed forced to slow and then stop the asset purchases that are currently keeping mortgage rates artificially low.

Meanwhile, for as long as investors maintain their faith in the Fed, mortgage rates seem likely to drift. Some weeks are bound to be good. But most experts expect the overall direction of travel to be (gently) higher.

But …

It was possible that yesterday’s jobs report could have jolted the Netherlander child to retrieve his digit. And future employment and inflation reports still have the potential to do so.

But that applies only for as long as the economic recovery continues. Right now, that looks safe. And the Fed is forecasting growth in 2021 of 7%, the highest rate since the early ’80s.

However, the future is never certain. And something could come along that strangles that recovery. For example, some fear the possible emergence of a vaccine-resistant variant of SARS-CoV-2, the virus that causes COVID-19. If that or some other earth-shattering event were to occur, mortgage rates could well tumble.

But deciding when to float or lock your mortgage rate is all about weighing probabilities. And, to me, it seems unwise to wager the size of your future monthly payments on such unlikely scenarios.

Economic reports next week

The event on next week’s calendar most likely to influence mortgage rates isn’t an economic report at all. It’s the release on Wednesday of the minutes of the last meeting of the Federal Open Market Committee (FOMC). That’s the Federal Reserve’s main policy body.

Investors and analysts always pore over these minutes. But they’ll be especially interested in these latest ones because they’ll reveal discussions about future interest rate hikes and the tapering of asset purchases. They record the temperature of individual top Fed officials on this crucial subject.

None of the actual economic reports listed below is likely to cause much movement in markets unless they include 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:

• Tuesday — June Institute for Supply Management (ISM) services index
• Wednesday — FOMC minutes and June job openings
• Thursday — Weekly new claims for unemployment insurance to July 10

Next week, Wednesday’s the big day with its FOMC minutes.

Find and lock a low rate (Jul 3rd, 2021)

Mortgage interest rates forecast for next week

Once again, I’m expecting that mortgage rates may hold steady or close to steady next week.

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 fairly constant as they change.

Meanwhile, a recent regulatory change has made most mortgages for investment properties and vacation homes more expensive.

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