Today’s mortgage and refinance rates 

Average mortgage rates inched lower on Christmas Eve. And, that day, Freddie Mac declared yet another all-time low for its weekly rates survey. So there’s a good chance you could lock in a rate today that’s better than at any time in history.

Next week, I’m expecting these rates to move very little. There may be some upward pressure on them if Congress and the White House finally get their acts together over pandemic relief measures. But there was plenty of exciting news this week and none of that translated into volatility.

Find and lock a low rate (Dec 26th, 2020) Find and lock a low rate (Dec 26th, 2020)

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?

Nothing’s changed my personal view that mortgage rates have further to fall. But there’s always a chance of their suddenly rising, no matter how unlikely that currently seems.

So you now have to balance risk and reward. And I currently think that mortgage rates are unlikely to fall far enough in the next few weeks to justify even the slight danger of continuing to float.

So I’d lock now if I were closing in January and live with the possibility of missing out on any gains. But I’d probably float if my closing date were further ahead.

But those are just my personal opinion. Only you can decide what to do, largely based on how comfortable you are with risk.

Still, for now, 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

But 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

Last week, I mentioned the possibility of more volatility ahead. That’s because lenders will soon be unable to cushion borrowers from every little bump in markets, something they’ve been doing for months. Think of it as their shock absorbers (or dampers) being shot.

The direction of rates

If an event-filled week like this one failed to move mortgage rates (they ended the week exactly where they started), then it’s hard to imagine what will move them far.

Markets shrugged off high drama as Congress passed bills providing pandemic relief (and averting a government shutdown starting Monday) and covering defense spending. And mortgage rates barely moved. That continued even as the president delayed signing them.

Normally, you’d expect those rates to rise if the impasse ends and to fall if it drags on. But will they next week?

Over the medium term, I still think mortgage rates have further to fall. That’s because those rates tend to be low when the economy’s in trouble.

Pandemic

The main reason I think mortgage rates will likely go lower is the pandemic. True, there’s likely to be a fall in infection, hospitalization and death rates around the holiday.

But that will at least partly be down to reporting irregularities caused by that holiday. And a surge in a week or two would be no surprise after so much social mixing for seasonal celebrations.

Of course, vaccination programs will begin to have an effect soon. But many think we’ll be into the second half of next year before there’s a return to normalcy. And, in the meantime, the pandemic will continue to wreak personal and economic havoc.

Brexit

The European Union (EU) and the UK succeeded in reaching a last-minute trade agreement earlier in the week. That’s still likely to add to trade friction and damage both sides.

But it’s way better than the alternative, which might have disrupted an important corner of the global economy. Unless things change (the deal still has to be ratified), we can hope to never mention Brexit (the process of Britain withdrawing from its membership of the EU) again.

Economic reports next week

As you might expect, this holiday week looks set to be a quiet one for economic reports. Markets might react if Thursday’s weekly figures for new claims for unemployment insurance are much better or worse than expected.

But it would likely take shocking news for them to move far on publication of the S&P Case-Shiller home price index (Tuesday) or pending home sales on Wednesday. Friday’s a public holiday.

Find and lock a low rate (Dec 26th, 2020)

Mortgage interest rates forecast for next week

I’m expecting another quiet week for mortgage rates. That doesn’t mean there’s no chance of volatility. But I rate that as unlikely.

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