Today’s mortgage and refinance rates 

Average mortgage rates fell yesterday. And suddenly they’re back within their uberlow range. Indeed, one more drop like yesterday’s and they’ll be at their all-time low.

That news provides grounds for optimism. But it doesn’t bring any certainty. There are still forces trying to push rates higher, and the fact they’ve been losing that struggle recently doesn’t mean they’ll continue to do so.

Personally, I’m a cautious type and I’d lock my rate when I was 30 days from closing. But, if you’re brave and enjoy risk, you might make more savings by hanging on.

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

We’ve now had seven working days without these rates rising. And that’s transformed the scene, bringing the prospect of a new all-time low tantalizingly close.

But those seven working days were preceded by six when they only rose. And such brief periods are bad bases for making predictions. So I can’t.

What I can do is say that your next move has more to do with your appetite for risk than an informed choice. If you’re cautious, you could lock now (at a highly attractive rate) and shrug if mortgages get even less costly. But, if you enjoy a gamble, continuing to float isn’t a bad bet — providing you can afford any losses if rates suddenly rise.

But, whichever way you’re leaning, read the next section before making a decision. It might contain insights that could help. 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

Recent falls in mortgage rates have been over way too brief a period for anyone to call a trend. And the force trying to push mortgage rates upward hasn’t disappeared.

Government borrowing

That force is the prospect of higher government borrowing. More details emerged this week of President Joe Biden’s spending plans. And his $1.9-trillion proposal for pandemic relief will be on top of the $2.9 trillion already spent over the last year through Trump-era relief measures.

And the new administration won’t stop there. Other similarly serious sums are earmarked for infrastructure, health and other programs. Of course, not all of those will survive Congress (60 votes are needed in the Senate to pass much legislation) but the likelihood of more government spending is high.

But more government spending means more government borrowing. And more government borrowing almost always eventually means higher interest rates.

True, the Federal Reserve has signaled that it won’t be raising its rates anytime soon. But government bond yields (Treasurys) and mortgage rates move independently of the Fed. And those could head sharply higher at any time and with zero notice.

Pandemic

It’s likely that the reason mortgage rates have mostly remained low is that another, similarly strong force is trying to drive them lower. And that’s the economic effects of the pandemic.

When that brake’s removed, mortgage rates should move considerably higher. But that’s not a problem yet. As Yale economist Paul Krugman wrote in Thursday’s New York Times:

And we know, as certainly as we know anything in economics, that the economy will be depressed at least into the summer and probably beyond.

— “The Corrupt, the Clueless and Joe Biden,” Paul Krugman, New York Times, Jan 21, 2021

Good and bad news

The good news is that new infections are falling following the holiday spike. And that the vaccination rollout is finally looking poised to gain traction. But yesterday’s e-newsletter from Comerica Bank Chief Economist Robert A. Dye reflected on the economic gloom that remains:

… we remain concerned that the rough start to vaccine distribution world-wide leaves some risk on the table with respect to the need for ongoing social mitigation policies. Extended restrictive social policies could push the expected fall rebound in economic activity back.

— Comerica Economic Weekly, Jan 22, 2021

Low interest and mortgage rates are a common feature of struggling economies. And economic gloom is slogging it out with higher government borrowing to determine where mortgage rates go next.

So which will win?

With luck, that economic gloom will fade later this year. The downside of that is that there will be nothing to stop higher government borrowing from pushing mortgage rates higher.

In the meantime, the two are likely to compete. And the best we can hope for is that they are mostly equally matched, resulting in a standstill. But there are likely to be times when one dominates the news, and briefly wins out.

And that might mean that we’ll see more volatility — up and down — in mortgage rates than we’ve grown used to. Unfortunately, that makes picking the ideal time to lock more difficult.

Economic reports next week

Thursday’s gross domestic product (GDP) figures are likely the most important data of next week. But Friday’s personal income and spending figures can also attract attention. The others are unlikely to cause waves in markets unless they’re shockingly good or bad.

Here are next week’s main economic reports:

• Tuesday — December Case-Shiller U.S. national home price index
• Wednesday — December advance durable goods orders
• Thursday — First estimate for GDP in the last quarter of 2020. Plus weekly new claims for unemployment insurance. And December new homes sales
• Friday — December personal income and personal spending

With the pandemic and future government borrowing dominating markets, all these could pass almost noticed unless they vary wildly from expectations.

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

Mortgage interest rates forecast for next week

We’re keeping our fingers crossed for a new all-time low next week. But we have few grounds for expecting that, beyond some natural optimism. Because mortgage rates remain inherently unpredictable.

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