Today’s mortgage and refinance rates 

Average mortgage rates just edged lower yesterday. It was a welcome end to a poor week for those rates. Because that saw rises (some appreciable) on the four preceding working days.

Once again, we have to say that mortgage rates next week are unpredictable. That’s not a cop-out. But this weird phase of the economic recovery makes short-term predictions less than worthless. Read on for why.

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

Current mortgage and refinance rates 

Find and lock a low rate (May 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?

Leaving aside yesterday, mortgage rates are currently at their highest point since April 21, according to Mortgage News Daily. Yes, they might fall further. But the heady days of the first half of April, when they fell consistently, seem unlikely to recur anytime soon.

My guess is that they might climb higher over the next month, though not necessarily sharply. However, we’re in unchartered economic territory right now. And nobody can be certain about much. Read on for the details.

Personally, I feel that caution is required when choosing to lock or float a rate. And I’d rather lose a little by locking too early than risk losing a lot by floating for too long. But, if you take the opposite view, that’s fine. Right now, these decisions have more to do with your personal tolerance for risk than an informed choice based on empirical data.

So my overall 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

Yesterday, Comerica Bank’s weekly economic e-newsletter described the current situation well:

U.S. economic indicators from this week show how weird the economy is right now, and will be for some time to come. The shock waves from COVID lockdowns, massive monetary and fiscal stimulus, re-openings and policy unwind are reverberating through the system.

— Comerica Bank, Comerica Economic Weekly, April 14, 2021

This leaves many economists struggling to find traction as their models and theories are exposed to this weirdness. So some believe that seriously high (perhaps, runaway) inflation is on the cards. Others believe that’s highly unlikely.

The great inflation debate

During the week, economist Paul Krugman pointed (paywall) to a large body of colleagues who predicted high inflation when the Obama administration was stimulating the economy during the Great Recession. Then, like now, there was a period when inflation grew hotter than usual.

But that lasted only a few months. And, after that, it settled down within its normal range.

In reality, nobody can be certain what will happen. But, if significantly higher inflation does turn up, mortgage rates are highly likely to rise quickly. And just the current fear of future inflation is already exerting some upward pressure on them. Worse, there’s a secondary risk: that enough of us will buy the runaway inflation narrative to turn it into a self-fulfilling prophecy.

Of course, inflation isn’t the only possible cause of higher mortgage rates. If the economic boom forecast by the Federal Reserve materializes, that could be enough to push those rates appreciably higher on its own.

But there are also risks that could see them tumble. The most obvious of those is the possible emergence in the future of a new variant of the COVID-19 virus that’s resistant to vaccines. If that were to take hold, it could kill the economic recovery and take us back to square one — including uberlow mortgage rates.

Economic reports next week

The most influential economic report this week will likely not be an economic report at all. It’s the minutes of the last meeting of the Federal Reserve’s Federal Open Market Committee (FOMC). That’s the Fed’s key monetary policy body. And invariably investors and analysts pore over every word.

But the others listed below are unlikely to set any pulses racing. Moreover, regular readers will know that markets have been ignoring most economic reports in recent weeks. So the effects of the following may be different from usual:

• Tuesday — May building permits and housing starts

• Wednesday — Minutes of the last meeting of the FOMC

• Thursday — April index of leading economic indicators. Plus weekly new claims for unemployment insurance

• Friday — April existing home sales. Plus initial readings (“flashes”) of May purchasing manager indexes for services and manufacturing from Markit

So watch out for Wednesday’s FOMC minutes.

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

Mortgage interest rates forecast for next week

Unfortunately, nothing’s changed. And mortgage rates remain essentially unpredictable. Now you know “how weird the economy is right now,” in Comerica Bank’s words (above), I hope you’ll forgive me.

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