Today’s mortgage and refinance rates 

Average mortgage rates rose yesterday, though only by the smallest measurable amount. Still, that came as a relief after a solid week of rises that included three unusually large jumps.

My best guess is that mortgage rates might hold steady or fall a little next week. Because markets often pause and adjust after such a sharp weekly rise. But I wouldn’t dignify that guess by calling it a forecast. Too much is unknowable at the moment to be sure of anything.

Find and lock a low rate (Jun 19th, 2021)

Current mortgage and refinance rates 

Find and lock a low rate (Jun 19th, 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?

So the risks of floating came home to roost this week. But what we saw probably wasn’t the sharp and sustained rise I’ve been predicting. That’s now likely to turn up later in the year.

So there’s hope that mortgage rates may fall a little soon, perhaps next week. Read on for more information. If I were still floating, I’d hang on and try to moderate my losses by waiting for at least a couple of days of falls. But even that involves some risk.

However, besides that, 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

We have to talk some more about the Federal Reserve. Because it was trading that anticipated or responded to its midweek news conference and report that was behind this week’s sharp rises in mortgage rates. Here’s why.

Right now, the Fed is spending $40 billion a month buying mortgage-backed securities (MBSs). And it’s the price of those that actually determines mortgage rates.

Artificially low mortgage rates to end?

That extra demand for those bonds pushes up their prices, which keeps their yields lower than they’d be without the Fed’s intervention. Yes, higher prices = lower yields (and rates) may be counterintuitive. But it’s a mathematical certainty.

So the Fed’s currently keeping mortgage rates artificially low. But everyone knows that this can’t last for long, especially as the economy recovers and inflation increases.

What happened this week was that the Fed acknowledged that inflation was running hotter than expected. And it said it would begin talking seriously about slowing and eventually stopping asset purchases (including MBSs) from the next policy meeting (July 27-28).

If inflation continues to grow quickly (or enough people expect it to keep growing), it’s just possible that the Fed could begin to gradually reduce (“taper,” in Fedspeak) its purchases of MBSs then. But most commentators think it’s more likely to make a move later in the year. These are the dates of its other two-day policy meetings later this year:

• September 21-22
• November 2-3
• December 14-15

There’s also a possibility of an announcement at the Bretton Woods conference in late August. Whenever the announcement comes, it’s likely to bring sharply higher mortgage rates immediately after.

Caveats

Now, it’s just possible that markets won’t bother waiting for an announcement. Indeed, it might even be that the rises we’ve seen this week are the start of an upward trend. But that seems relatively unlikely. And many now seem to be expecting an announcement and consequent sharp rise sometime between August and December.

Of course, that doesn’t mean that there won’t be more rises than falls between now and then. But I suspect they’ll be fairly evenly balanced and that rates will just slowly drift upward most weeks until the announcement hits.

Of course, we’re looking at my personal weighing of probabilities here. And nothing’s certain. Indeed, there’s always a chance of some cataclysmic event undermining the recovery, cutting inflation and causing mortgage rates to tumble. But nobody wants one of those.

A bit of less good news

Last week, I reported on a new phenomenon. The weak dollar was attracting foreign investors to buy American investments, probably including mortgage-backed securities. And that could keep mortgage rates lower than otherwise.

But the Fed’s actions this week have strengthened the dollar. So, the effect foreigners might have on mortgage rates could be less than I hoped. Unless the dollar weakens again.

Economic reports next week

The three most important economic reports this week are due on Friday. One that day relates to inflation (core personal consumption expenditures (core PCE) index), which is one of the two hottest topics for investors right now. (Employment’s the other.) The other two can show how the recovery’s going: personal income and consumer spending data. All those figures relate to May.

But the others listed below are unlikely to cause much movement in markets unless they include shockingly good or bad data. 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 existing home sales
• Wednesday — May Markit purchasing managers’ indexes (PMIs) for the manufacturing and services sectors
• Thursday — May durable goods orders. And the final revision of the gross domestic product (GDP) figure for the first quarter of 2021. Plus weekly new claims for unemployment insurance to June 19
• Friday — May personal income, consumer spending and core PCE price index. Plus the first reading of the University of Michigan’s consumer sentiment index for June

Watch out for Friday!

Find and lock a low rate (Jun 19th, 2021)

Mortgage interest rates forecast for next week

After fast and furious rises this week, we may be in for a break. And my best guess is that mortgage rates may fall a little next week. But it remains possible that markets aren’t yet through with rises.

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