Mortgage rates are in a constant flux. Consumers aren’t really aware of these intra-day movements, but mortgage lenders certainly are. While rates can move up or down every so slightly during the business day, it’s the longer term trend that can affect home buyers savings. Interest rates have been moving higher over the past year, and that trend will likely continue through 2019.
Consider the most common mortgage in today’s marketplace- the 30-year fixed rate conforming loan. When lenders set their daily interest rates each morning, they refer to a specific index before posting their rates. For a 30 year fixed rate, the referenced index is the FNMA 30yr 4.5 mortgage-backed security. This security is a mortgage bond and like any other type of bond, the yield or the return, to the investor is known in advance.
This is opposite to how investors buy stocks or mutual funds. When buying a stock or investing in a mutual fund, the investor makes a determination the stock will be worth more in the future and will ultimately sell for a profit. Or, the investor can “short” a stock and bet the value will be lower later on. Either way, there’s risk involved.
Bonds, however, are purchased more as a security blanket or a flight to safety. The advantage of bonds is security. There really is no gamble but the returns are meager compared to what an individual stock might bring. When the economy is moving right along investors typically pour more money into stocks and pull funds from bonds. On the other hand, when the economy appears to be slowing down or at least investors think that’s what will happen in the near future, money will be taken out of the stock market and placed into the safety of a bond, including mortgage bonds.
Just like any other commodity, when the demand for a certain item goes up, the price goes up. When investors flock to bonds the price will increase but at the same time the yield, or the return, will fall. Again, the appeal of a bond is safety.
However, in recent weeks, mortgage bond prices have actually gone up which is driving down the yield. Yet these prices have been somewhat volatile on a day-to-day basis and mortgage rates have actually improved a little bit. But increasing signs of stronger economic activity is putting upward pressure on rates and keeping the average 30 year fixed rate around 5.0%.
Investors still aren’t completely sold on the economy in spite of recent economic data. There is continued talk about a market bubble and Wall Street is overbought. Yet in the big picture, rates are still extremely competitive.
One very important point that needs to be made about researching mortgage rate data is to be wary of doing an online search. For example, Freddie Mac publishes a weekly mortgage rate survey that is a compiled average of rate quotes from multiple lenders across the country. Yet these reported rates are static and use week-old statistics.
The only way to get accurate, up-to-date rate information is with a phone call to your loan officer. Loan officers are constantly keeping track of mortgage rates, mortgage bonds and economic activity to know not only where mortgage rates are today but where mortgage rates might be headed in the future. There can even be an intra-day price change when mortgage bonds make a strong move in one direction or the other.
These intra-day mortgage rate changes aren’t very common but they do occur. That means you can get a rate quote from your lender in the morning and then when you’ve decided to lock in a rate, you call back later in the afternoon and the rate has change solely because mortgage markets have changed. For someone outside of the mortgage industry, it might seem the mortgage company is changing rates capriciously but that’s not the case at all. Loan officers are issued mortgage rates by their company and quote rates from there.
The most common mortgage programs today are conventional loans, Jumbo and Government-backed loans like FHA, VA, USDA. Any daily interest changes will likely affect the rates on these programs the same. Example: if the rate increases ¼ percent on a standard 30 year fixed conforming loan, the interest on a 30 yr FHA loan will likely increase by the same amount.
Mortgage rates are currently at their highest level in 7 years. As the economy continues to show signs of improvement, most experts agree the 2019 forecast calls for rates to increase even more. How much exactly is the million dollar question, but most experts predict a ½ – 1 percentage point is a reasonable prediction.