Today’s mortgage and refinance rates 

Average mortgage rates inched higher yesterday. And that meant we’ve seen four rises and one fall this week. It’s not a great outcome. But each movement was tiny so the actual damage done was limited. The fact is, these rates remain in a range that’s incredibly low historically.

I don’t currently see a reason to think this will change next week. So floating your rate might be less risky than usual. But it’s also likely to deliver negligible rewards. So, personally, I’d lock my rate when I was 30 days from closing.

Find and lock a low rate (Feb 7th, 2021) Find and lock a low rate (Feb 7th, 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?

Small daily changes have been a feature of mortgage rates recently. If you look back over the last month, there have been two instances each of them moving by 3, 4 or 5 basis points (a basis point is one-hundredth of 1%) but on all the other working days, they moved by only 1 or 2 basis points — or not at all. They’ve been remarkably stable.

Of course, it’s possible this gentle pattern will change suddenly — with no notice at all. And nobody can ever promise that mortgage rates won’t unexpectedly soar or plummet. But that doesn’t appear likely to me right now.

So the question is not: Should you gamble by continuing to float? It’s: Is it worth it when your winnings are likely to be so low?

True, my recommendation to lock if you’re closing within 30 days of closing is based on an abundance of caution. But why take even the small chance of something big suddenly emerging that messes things up when the rewards of floating are likely to be so limited?

• 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

Part of the reason mortgage rates have been moving so little recently is that two conflicting forces are acting on them. One’s trying to push them higher and the other’s working to drag them lower.

Downward force

The downward force is the state of the economy. An official report yesterday showed the country adding just 49,000 jobs to nonfarm payrolls in January. Normally, you could dismiss such a low figure as an aberration.But the US lost tens of millions of jobs last spring. And roughly 10 million Americans who were working before then are yet to find new employment. So we need much faster job growth.

And it’s not just employment. The economic harm caused by the pandemic is real and pervasive across many measures and sectors.

This is terrible news for everyone — except those who want low mortgage rates. Because a weak economy and low rates are natural partners.

Upward force

Conversely, high rates go hand in hand with thriving economies. So the prospect of things getting better creates an upward force. And most observers do expect the pandemic to recede and the economy to improve through the rest of this year, albeit slowly. The main risk factors for that are the rollout of the vaccination program and the possibility of variant strains of COVID-19 emerging that are resistant to vaccines.

Some of that improvement is likely to be generated by government spending on pandemic relief programs, including the $1.9 trillion one currently proposed by the Biden administration.

But higher government spending puts additional upward pressure on mortgage rates. Because most of it will be funded by new government borrowing.

And some of the investors who currently buy mortgage-backed securities (the financial instruments that actually determine mortgage rates) will be buying US Treasury bonds (government debt) instead. So rates and yields will have to rise to continue to attract them.

How the battle could play out

Assuming the vaccines work as planned, it’s likely mortgage rates will rise appreciably during 2021. But it’s impossible to say when that will begin to happen appreciably.

For the time being, mortgage rates will probably continue to gently rise and fall as each of the conflicting forces waxes and wanes in evolving news cycles.

Economic reports next week

It’s a relatively quiet seven days for economic reports. At other times, Wednesday’s consumer price index might have carried more weight. But it’s been a while since that was seen as much of a threat.

Here are next week’s main economic reports:

• Wednesday — January consumer price index, including core CPI
• Thursday — Weekly new claims for unemployment insurance.
• Friday — February consumer sentiment index (first reading)

Chances are, these reports will have to be shockingly good or bad to have much impact on mortgage rates.

Find and lock a low rate (Feb 7th, 2021)

Mortgage interest rates forecast for next week

I’m not expecting mortgage rates to move far next week. It’s more likely that we’ll see a continuation of the gentle rises and falls we’ve witnessed in recent months.

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