Mortgage Rate Watch
A new home can be the biggest purchase of your life. Before you start looking for the right home, you may want to research your mortgage options.
But not all mortgages are created equal. So, by doing your research beforehand, you can choose the option that best suits your financial situation and potentially puts more money in your pocket. You also know what guidelines to follow when applying.
Types of mortgages
- Conventional loan – Best for borrowers with a good credit score
- Jumbo loan – Best for borrowers with excellent credit looking to buy an expensive home
- Government-insured loan – Best for borrowers who have lower credit scores and minimal cash for a down payment
- Fixed-rate mortgage – Best for borrowers who’d prefer a predictable, set monthly payment for the duration of the loan
- Adjustable-rate mortgage – Best for borrowers who aren’t planning to stay in the home for an extended period, would prefer lower payments in the short-term and are comfortable with possibly having to pay more in the future
Conventional loans, which are not backed by the federal government, come in two forms: conforming and non-conforming.
Conforming loans – As the name implies, a conforming loan “conforms” to the set of standards put in place by the Federal Housing Finance Agency (FHFA), which includes credit, debt and loan size. For 2023, the conforming loan limits are $726,200 in most areas and $1,089,300 in high-cost areas.
Non-conforming loans – These loans do not meet FHFA standards. Instead, they cater to borrowers looking to purchase more-expensive homes or individuals with unusual credit profiles.
- Can be used for a primary home, second home or investment property
- Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher
- Can ask your lender to cancel private mortgage insurance (PMI) once you’ve reached 20 percent equity, or refinance to remove it
- Can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac
- Sellers can contribute to closing costs
- Minimum FICO score of 620 or higher is often required (the same applies for refinancing)
- Higher down payment than some government loans
- Must have a debt-to-income (DTI) ratio of no more than 45 percent (50 percent in some instances)
- Likely need to pay PMI if your down payment is less than 20 percent of the sales price
- Significant documentation required to verify income, assets, down payment and employment
If you have a strong credit score and can afford to make a sizable down payment, a conventional mortgage is probably your best pick. The 30-year, fixed-rate mortgage is the most popular choice for homebuyers.
Jumbo mortgages are home loan products that fall outside FHFA borrowing limits. Jumbo loans are more common in higher-cost areas such as Los Angeles, San Francisco, New York City and the state of Hawaii, where home prices are often on the higher end.
Pros of jumbo loans
- Can borrow more money to purchase a more expensive home
- Interest rates tend to be competitive with other conventional loans
- Often the only finance option in areas with extremely high home values
Cons of jumbo loans
- Down payment of at least 10 percent to 20 percent required in many cases
- A FICO score of 700 or higher usually required
- Cannot have a DTI ratio above 45 percent
- Must show you have significant assets in cash or savings accounts
- Usually require more in-depth documentation to qualify
Who are jumbo loans best for?
If you’re looking to finance a home with a selling price exceeding the latest conforming loan limits, a jumbo loan is likely your best route.
The U.S. government isn’t a mortgage lender, but it does play a role in making homeownership accessible to more Americans by guaranteeing certain types of loans — thus lessening the risk for lenders. Three government agencies back mortgages: the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA) and the U.S. Department of Veterans Affairs (VA).
- FHA loans – Backed by the FHA, these home loans come with competitive interest rates, and help make homeownership possible for borrowers without a large down payment or pristine credit. You’ll need a minimum FICO score of 580 to get the FHA maximum of 96.5 percent financing with a 3.5 percent down payment. However, a score as low as 500 is allowed if you put at least 10 percent down. FHA loans require mortgage insurance premiums, which can increase the overall cost of your mortgage. Lastly, with an FHA loan, the home seller is allowed to contribute to closing costs.
- USDA loans – USDA loans help moderate- to low-income borrowers who meet certain income limits buy homes in rural, USDA-eligible areas. Some USDA loans do not require a down payment for eligible borrowers. There are extra fees, though, including an upfront fee of 1 percent of the loan amount (which can typically be financed with the loan) and an annual fee.
- VA loans – VA loans provide flexible, low-interest mortgages for members of the U.S. military (active duty and veterans) and their families. There’s no minimum down payment, mortgage insurance or credit score requirement, and closing costs are generally capped and may be paid by the seller. VA loans charge a funding fee, a percentage of the loan amount, which can be paid upfront at closing or rolled into the cost of the loan along with other closing costs.
Pros of government-insured loans
- Help you finance a home when you don’t qualify for a conventional loan
- Credit requirements more relaxed
- Don’t need a large down payment
- Available to repeat and first-time buyers
- No mortgage insurance and no down payment required for VA loans
Cons of government-insured loans
- Mandatory mortgage insurance premiums on FHA loans that usually cannot be canceled
- FHA loan sizes are lower than conventional mortgages in most areas, limiting potential inventory to choose from
- Borrower must live in the property (although you may be able to finance a multi-unit building and rent out other units)
- Could have higher overall borrowing costs
- Expect to provide more documentation, depending on the loan type, to prove eligibility
Who are government-insured loans best for?
Are you having trouble qualifying for a conventional loan due to a lower credit score or minimal cash reserves for a down payment? FHA-backed and USDA-backed loans could be a viable option. For military service members, veterans and eligible spouses, VA-backed loan terms are often more generous than a conventional loan’s.
Fixed-rate mortgage
Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means your monthly mortgage payment always stays the same. Fixed loans typically come in terms of 15 years or 30 years, although some lenders allow borrowers to pick any term between eight and 30 years.
Pros of fixed-rate mortgages
- Monthly principal and interest payments stay the same throughout the life of the loan
- Easier to budget housing expenses from month to month
Cons of fixed-rate mortgages
- If interest rates fall, you’ll have to refinance to get that lower rate
- Interest rates typically higher than rates on adjustable-rate mortgages (ARMs)
Who are fixed-rate mortgages best for?
If you are planning to stay in your home for at least five to seven years, and want to avoid the potential for changes to your monthly payments, a fixed-rate mortgage is right for you.
In contrast to fixed-rate loans, adjustable-rate mortgages (ARMs) have interest rates that fluctuate with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the remainder of the term. For example, you might see a 7/6 ARM, which means that your rate will remain the same for the first seven years and will adjust every six months after that initial period. If you consider an ARM, it’s essential to read the fine print to know how much your rate can increase and how much you could wind up paying after the introductory period expires.
Pros of ARMs
Lower fixed rate in the first few years of homeownership (although this isn’t a guarantee; as of late, 30-year fixed rates have actually been similar to those for 5/6 ARMs)
Can save a substantial amount of money on interest payments
Cons of ARMs
Monthly mortgage payments could become unaffordable, resulting in a loan default
Home values may fall in a few years, making it harder to refinance or sell before the loan resets
Who are adjustable-rate mortgages best for?
If you don’t plan to stay in your home beyond a few years, an ARM could help you save on interest payments. However, it’s important to be comfortable with a certain level of risk that your payments might increase if you’re still in the home.
Other types of home loans
In addition to these common kinds of mortgages, there are other types you may find when shopping around for a loan:
- Construction loans: If you want to build a home, a construction loan can be a good financing choice — especially a construction-to-permanent loan, which converts to a traditional mortgage once you move into the residence. These short-term loans are best for applicants who can provide a higher down payment and proof that they can afford the monthly payments.
- Interest-only mortgages: With an interest-only mortgage, the borrower makes interest-only payments for a set period – usually five and seven years — followed by payments for both principal and interest. You won’t build equity as quickly with this loan, since you’re initially only paying back interest. These loans are best for those who know they can sell or refinance, or for those who can reasonably expect to afford the higher monthly payment later.
- Piggyback loans: A piggyback loan, also referred to as an 80/10/10 loan, involves two loans: one for 80 percent of the home price and another for 10 percent. You’ll make a down payment for the remaining 10 percent.These loan products are designed to help the borrower avoid paying for mortgage insurance. But piggyback loans require two sets of closing costs, and you’ll also accrue interest on two loans, making this unconventional arrangement these best for those who will actually save money using it.
- Balloon mortgages: A balloon mortgage requires a large payment at the end of the loan term. Generally, you’ll make payments based on a 30-year term, but only for a short time, such as seven years. When the loan term ends, you’ll make a large payment on the outstanding balance, which can be unmanageable if you’re not prepared or your credit situation deteriorates. These loans are best for those who have the stable financial resources needed to make a large balloon payment once the loan term ends.
Highest Mortgage Rates in 2 Months
It's been a strange and frustrating couple of weeks for anyone who mistakenly believed that mortgage rates would move lower after the Fed rate cut. To be sure, there is plenty of that sentiment out there according to the just released Fannie Mae sentiment survey showing the highest net percentage of respondents who thought rates would go down since the survey began in 2021. To be fair, the survey asks about a 12 month time frame and a lot can happen in 12 months. As for the 3 weeks since the Fed rate cut, however, things have not been great. Today's rate movement added insult to Friday's injury with the market still working through the momentum created by Friday's stronger jobs report. Given the motivations for the rate spike and the available economic data, it's unlikely that rates will move quickly back down to the levels seen in mid September. They'd need a lot of downbeat economic data to do so. Even then, traders would still be waiting to see what the next jobs report had to say before getting too carried away. Meanwhile, there's some risk of additional weakness in rates if the economic data is more resilient than expected. The average lender is already back up to levels last seen in early August. Bottom line, markets got locked into the belief that data would slowly deteriorate (with a lot of weight being given to the last few jobs reports) only to see the most recent jobs report say "not so fast!" There's a bit of a re-set happening at the moment. We can't know exactly how big it will be until we get through more econ data. Unfortunately, this week is much lighter than last week in that regard.
1 day 11 hours ago
Checkout newsMassive Jump in Mortgage Rates After Jobs Report
Today's much-anticipated jobs report ended up coming out much stronger than expected. A stronger result was all but guaranteed to cause carnage (relative) in the mortgage market and that's definitely what we're seeing. A caveat is that rates are still much lower than they were several months ago, but the average lender is now back in line with mid August levels. Additionally, this is one of the largest single day jumps we've seen with the average 30yr fixed rate moving from 6.26 to 6.53. A move of more than 0.25% in a single day is tremendously uncommon, but it can happen due to the underlying structure of the mortgage bond market. For those who would like to nerd out on those details, here you go: Whether a mortgage lender is lending their own stockpiles of cash or temporary cash obtained from a credit line, the chunk of cash wired to escrow at closing carries a cost. For a majority of mortgage lenders, the day to day changes in those costs are determined by the trading of mortgage-backed securities (MBS). MBS are similar to bonds like Treasuries in that investors pay a lump sum of cash and earn interest over time. They're different in several key ways. The most important difference is that the “borrower” of US Treasuries (i.e. the US Government) cannot return principal to the investor and end the deal. It must continue to pay for as long as it agreed. Mortgage borrowers, on the other hand, can sell/refi/etc and end the mortgage that underlies the mortgage-backed security. This introduces an element of uncertainty for investors that will be important in a moment.
4 days 14 hours ago
Checkout newsConsistently Higher Rates Since Fed Rate Cut, But Friday Could be BIG
Depending on how tuned in you've been to changes in our daily rate tracking, the news may be getting old at this point. Rates have done almost nothing but move higher ever since the Fed cut rates on September 18th. While this continues to be a challenge for some folks to comprehend, it was always a risk, which is why we spent several weeks warning about the possibility leading up to Fed Day. Thankfully, the increases have been small in the bigger picture. Today was just another day in that regard, although it was one of the bigger bumps in the road if we look at today's highest rates versus yesterday's lowest (Wednesday saw higher rates in the morning and lower rates in the afternoon. Thursday was the opposite pattern). Lenders increasingly increased rates throughout the day after an important economic report (ISM Services) showed much stronger than expected growth. As important as ISM data is, it's nothing compared to Friday's forthcoming jobs report. No other piece of scheduled economic data has as much power to cause volatility for rates. At this point the market has done a fairly good job of processing any remorse it might have had about getting too excited for Fed day and/or any anxiety that has been building about the econ data not being weak enough to justify a fast rate cut pace. This leaves Friday's data in a good position to either help or hurt in a fairly big way. The size of the reaction is generally proportional to size of the "beat" (job creation higher than expected) or "miss" (the opposite). There's no way to know which one we're going to get ahead of time. Occasionally, the data leads the bond market to "thread the needle" with rates ending up not far from where they started.
5 days 9 hours ago
Checkout newsMortgage Rates Near 1-Month Highs, But That's Still Pretty Great
Mortgage rates moved higher today after an employment report suggested that Friday's forthcoming Employment Situation (the BIG jobs report) might come in slightly better than expected. The report in question, ADP Employment, is always released 2 days before the big jobs report and it's designed to align with the key headline of that report: nonfarm payrolls. ADP's payroll count was only slightly higher than the market expected today, but that was enough for traders to sell bonds, thus pushing yields/rates higher. Thankfully, mortgage-specific bonds performed better than the rest of the bond market, thus limiting the upward movement in mortgage rates. Nonetheless, the average lender is back up to the highest levels since September 9th. While that is getting pretty close to a full 30 days, mortgage rates are still a far cry from the levels seen during the first few days of September. Moreover, there hasn't been a ton of movement after the 9th, so it didn't take much of an increase to get us back to those levels. The average lender has been in a narrow range of about 0.125% the entire time. All that having been said, the reaction to today's ADP report suggests the market is very willing to have a big reaction to Friday's jobs report. It's very true and very important to understand that there's no way to know how the jobs report will come out until it is actually released. The market has already adjusted to everything that can be known about the future. All we know is that volatility potential is elevated significantly heading into the end of the week.
6 days 10 hours ago
Checkout newsMortgage Rates Begin The Month With a Modest Victory
While the past 5 months have been well-stocked with victories for mortgage rates, the past week and a half brought a bit of a pull back. Most of that upward momentum can be chalked up to rates rushing to get into position for the Fed's rate cut on September 18th. It's actually quite a bit more complicated than that, but thankfully, the movement has been small enough that it doesn't demand a detailed explanation. In not so many words, the entire bond market had some "refiguring" to do after Fed day, and that process was pretty good for the shortest-term rates and mildly inconvenient for longer-term rates like mortgages. While there was some uncertainty at times, last week now looks like it clearly marked the end of the reaction phase to the Fed's policy shift. That leaves the rate market to move on to watching the normal stuff: scheduled economic data and unscheduled surprises that are big enough to impact global financial markets. Both came into play today. Interestingly enough, today's economic data didn't have a big impact on rates. Instead, the market focused on headlines regarding missile strikes in the Middle East. In general, escalating military conflict (if sufficiently alarming) tends to push stock prices and interest rates lower, as was the case this morning. Mortgage rates fell back to last Friday's levels after yesterday saw the highest rates in several weeks.
1 week ago
Checkout newsMortgage Rates Moderately Higher to Begin The Week
Mortgage rates have generally been moving higher since the Fed cut rates 2 weeks ago. We've discussed and explained that paradox exhaustively and can now move back to tracking the normal array of cause and effect in the rate market. The first day of the new week kept the trend of steady rate increases alive. Technically, these are the highest rates since September 9th, but it's important to remember that there's been very little change in the bigger picture. Apart from the past few weeks, today's rates would still be the lowest in more than a year. While today's weakness can't be reduced to a single factor, the primary motivation was a speech from Fed Chair Powell in which he reminded the market that the Fed was not in a hurry to cut rates. The message wasn't that different from the press conference that followed the Fed rate cut 2 weeks ago, but some market participants were perhaps hoping to see a softer side of Powell. From here, the schedule of economic data brings distinct opportunities for volatility in rates every day for the rest of the week. Friday is the most highly consequential due to the jobs report release at 8:30am ET.
1 week 1 day ago
Checkout newsRefi Booms, Loan Limits, and Mortgage Rate Misdirection
'Tis the season for things to be something other than what they appear to be, apparently. Lenders are talking about new loan limits, but they haven't officially changed. News stories are saying rates went lower this week, but they're higher. And there's even talk of a big refi boom, but as you may have guessed, that's also not exactly right. Rates . Rates continued to move slightly higher (yes, higher), while remaining close enough to long-term lows. This chart of 10yr Treasury yields (a proxy for longer-term rates like mortgages) does a good job of capturing all of the positive momentum seen in recent months as well as the mild correction that began after last week's Fed rate cut. Things look even milder if we focus on mortgage rates. In fact, one measure of mortgage rates (Freddie Mac's weekly survey) is so mild that it actually went LOWER this week. Sadly, Freddie's numbers don't align with reality this week. We are normally able to use the objective daily numbers from MND to reconcile such discrepancies, but it's not possible in this case. If you want a deeper dive on this phenomenon, here you go: Mortgage Rates are 100% NOT Lower This Week. Loan Limits and Home Prices Other misdirection plays are much easier to explain. For instance, you may see some lenders advertising new conforming loan limits that are near, or over $800k. Official conforming loan limits are announced at the very end of November. So who's lying?
1 week 4 days ago
Checkout newsMortgage Rates Are 110% NOT Lower This Week
Because we created the industry's first daily mortgage rate index based on actual lender rate sheets without any subjective distortions, and because the longest-standing mortgage rate index in the U.S. is a once-a-week survey with plenty subjective distortions and some quirky methodology, we often find ourselves pointing out what's "real" on many Thursday afternoons (the weekly survey comes out on Thursdays). In virtually every case we can remember, there have been quantifiable reasons for periodic discrepancies. Today may be the first (and certainly the most striking) example of Freddie Mac's weekly survey data simply not making any sense. Reason being: Freddie logged a DECREASE in rates this week. Before proceeding, we should be clear what that means in the scope of Freddie's methodology. A "week," in this case, refers to the 5 days starting each Thursday and ending each Wednesday. As such, if today's index is lower than last Thursday's, it means that the average rate between September 19th and 25th was lower than the average rate between September 12th through 18th. Therein lies the problem. Rates were quantifiably, clearly, and incontrovertibly higher--even if not significantly so. Normally, when we apply Freddie's same methodology to our own daily rate tracking, we can at least reconcile any directional discrepancies. We're not so worried about outright levels matching up because outright levels are not that important for mortgage rate indices (the CHANGE is important).
1 week 5 days ago
Checkout newsMortgage Rates Highest in More Than 2 Weeks
Mortgage rates hit their lowest levels in more than a year and a half last Tuesday as the bond market put the finishing touches on its preparation for the Fed announcement the following day. Since then, rates have been drifting mostly higher with each passing day. As of this past Monday, the average lender was at the highest levels since November 10th and those levels were matched again this afternoon--i.e. technically the highest rates in more than 2 weeks. While that may sounds a little unpleasant, apart from the past 2 weeks, these are still the lowest rates since February 2023, and still sharply lower versus the late 2023 highs or even the highs from just 2 months ago. In many ways, the big drop in rates heading into the middle of September was indeed all about the market getting in position for the Fed's big policy shift. The correction seen since then is understandable and it should run its course fairly soon. The only catch is that economic data has been and will continue to be a bigger driving force for rate momentum than the ebbs and flows surrounding Fed policy decisions. After all, those Fed policy decisions are based on economic data anyway. In that regard, the last two days of this week are the most important as they contain the most relevant economic data. Beyond that, next week is on another level (the highest level, arguably) due to Friday's jobs report--the hardest hitting monthly economic report of them all.
1 week 6 days ago
Checkout newsMortgage Rates Start Higher, But Fall After Economic Data
The Federal Reserve is far from the only game in town when it comes to exerting influence on interest rates. That's a loaded statement, of course, considering we spent last week explaining why mortgage rates often go the opposite direction from a Fed rate cut/hike. True to form, rates have generally inched higher since last week's Fed rate cut. But the Fed will be the first to tell you that their decision-making process is primarily informed by what's going on in the economy. On that note, they are on the same footing as the financial markets that determine the day to day changes in rates. The labor market is a particularly hot topic when it comes to monitoring economic data right now. The more it looks like it might be weakening, the more keen the Fed will be to keep cutting rates. Today's Consumer Confidence report showed the biggest gap in years between respondents who said jobs were plentiful and those who said jobs were hard to get. After that data came out this morning, the bond market (which dictates rates) began to improve quickly. Mortgage lenders who began the day by offering slightly higher rates than yesterday were able to issue mid-day changes. The resulting levels leave the average lender just a hair lower than yesterday. There will be more potentially important economic data on Thursday and Friday, but the biggest reports hit during the first week of October.
2 weeks ago
Checkout newsMortgage Rates Move Slightly Higher to Start New Week
Mortgage rates rose modestly last week after hitting long term lows before the Fed announced its 0.50% rate cut. In not so many words, mortgage rates had already gotten in position for that cut and were thus left to undergo a mild correction. The new week threatens to extend that corrective momentum as the average lender moved a bit higher again on Monday. The counterpoint is that the underlying bond market (bonds dictate day to day rate momentum) ended up recovering in the middle of the day. A bond market recovery is consistent with downward pressure on rates, but most lenders will wait until the following morning to make changes to their mortgage rate offerings unless the bond market moves more sharply. Point being: mortgage rates are indeed higher today, but momentum in the bond market suggests there's at least a possibility that the post-Fed correction is leveling off.
2 weeks 1 day ago
Checkout newsThe Wild Week That Wasn't
Credit where credit is due: the rate market did an outstanding job of getting out in front of the Fed rate cut as well as the changes to the Fed's rate cut outlook as communicated in the summary of economic projections (SEP). The SEP contains the proverbial "dot plot" that shows each Fed member's base case for where the Fed Funds Rate will be over the next few years. It has a strong tendency to cause volatility for bonds/rates. This week, however, it didn't have a big impact. If anything, the dot plot was helping point toward slightly lower rates on Fed day, but Fed Chair Powell's press conference took things back in a more neutral direction. Those counterbalancing forces meant that this week's potentially volatile mortgage rate reaction ended up being remarkably flat all things considered. Granted, rates did move a bit higher on Wednesday and Thursday, but a modest recovery on Friday left the week-over-week change almost perfectly flat. That is a stunning level of stability considering the stakes. Another way to look at all of the above would be to say the Fed's friendlier rate outlook was well understood by the market coming into the week and it would take major changes in economic data to drive the next big picture move. To that end, early October is the most reliable source of big ticket economic data. Next week has a few potentially important reports as well, but not until Thursday and Friday.
2 weeks 4 days ago
Checkout newsMortgage Rates Are Actually HIGHER This Week
Today's release of Freddie Mac's Primary Mortgage Market Survey took at bad problem and made it worse. Freddie's survey methodology means that today's reported rate is an average of the 5 days leading up to yesterday. The first few days in that time frame indeed saw the lowest rates in more than a year and a half, but they've definitely been moving higher over the past 2 days. Yes, mortgage rates moved higher yesterday and today. Strikingly, the Fed's announcement of a 0.50% rate cut had no positive impact on longer term rates like mortgages. As we expected and advised repeatedly, it was never about the rate cut itself, but rather the guidance offered by the Fed's rate outlook and Fed Chair Powell's press conference. Bonds/rates/mortgages knew there would be a rate cut, and bonds/rates/mortgages are under no obligation to wait to make their move if they know what's coming (so they did... and that's why rates were so low heading into Fed Day). It's bad enough that far too many people are repeating the false notion that the Fed rate cut was supposed to help mortgage rates. This issue will likely only be aggravated by the juxtaposition of Freddie's widely redistributed survey number less than a day later. BUT AGAIN, BEFORE you conclude or listen to someone else who has concluded that the Fed's rate cut is responsible for the drop in mortgage rates, please understand that mortgage rates had bottomed out before the Fed rate cut and have moved slightly higher over the past 2 days.
2 weeks 5 days ago
Checkout newsYes! Mortgage Rates Really Did Move HIGHER After The Fed Rate Cut
We publish daily coverage of mortgage rate movement and have done so for nearly 20 years now. It's a great place to quickly check in on rate trends and to get a sense of what's true and what matters. If you'd been checking in at any point in the past few days/weeks, you likely saw one of several attempts to remind readers that today's Fed rate cut not only had absolutely no implication for lower mortgage rates, but indeed that mortgage rates have often moved higher on the same day that the Fed cuts. That's what happened today. Interestingly enough, mortgage rates were already slightly higher than yesterday BEFORE the Fed announcement came out. The bonds that dictate mortgage rates are actually pointing to even higher rates tomorrow unless there's a decent improvement overnight. Given short attention spans, here's a bullet point list of why this paradox can exist:
The Fed meets 8 times a year whereas mortgages can move every day
The bonds that influence mortgages can move every second.
That means mortgage rates had a long head start toward lower rates while the Fed waited for their meeting date
A trader would be stupid to keep a tradeable rate/bond in higher territory if they knew as well as you did that the Fed was cutting rates today. Why would they wait to trade mortgage rates lower? Nothing was stopping them and that's why rates have dropped so much in recent months.
2 weeks 6 days ago
Checkout newsWhat Might a Fed Rate Cut do For Mortgage Rates?
Mortgage rates have fallen nearly 2% from last year's peak. Much of that decrease can be viewed as the normal phenomenon of longer term rates getting in position for changes in short term rates. The point we're about to make is that mortgage rates have already adjusted for what the Fed is likely to do--not just at this meeting, but many of the upcoming meetings as well. The Fed Funds Rate is an "overnight" rate. It is the rate on a loan of less than 24 hours. A 30yr fixed mortgage rate is a loan for anywhere from 3-10 years depending on a number of variables. Why not 30 years? Simply put, most people sell or refinance well before the 30 year mark. Investors care about the average life span and that's where the 3-10 year time frame comes in. For the sake of easy comparison, let's say a mortgage is most analogous to a 5 year loan. That means it would act more like a 5yr Treasury yield (Treasuries are the vanilla, risk-free benchmark for all other rates in the U.S.). The Fed Funds Rate is essentially a 1 day Treasury yield. From there, investors assign value to loans/bonds based on their going rate and the market's preference for holding certain durations of bonds. Longer term bonds tend to reflect the current short term bonds + the outlook for how those short term bonds will change over time. In other words, if you could know what the Fed Funds Rate would do over the course of the next 2 years, you could know a lot about how a 2 year Treasury yield should look today.
3 weeks ago
Checkout newsMortgage Rates Inch Lower to Begin Potentially Wild Week
The new week began on a relatively quiet note in terms of mortgage rate movement and the underlying bond market. There was modest volatility earlier this morning with a Manufacturing survey causing some headwinds for bonds. This would normally lead to slightly higher mortgage rates, but bonds recovered shortly thereafter and spent the rest of the day near their best recent levels. As such, it's no surprise to see mortgage rates also hanging out near their best recent levels. The average lender is right in line with the lowest rates since February 2023 for the 4th straight day. That calm, narrow range is at high risk of changing in the coming days. In addition to more relevant economic data in tomorrow's Retail Sales report, this week's biggest flashpoint will be Wednesday afternoon's Fed announcement. Traders have quickly shifted back to expecting slightly better odds of a 0.50% rate cut versus the minimum 0.25%. That's not even the important part of the announcement, however. Markets will be more focused on the rate trajectory outlined in the Fed's economic projections as well as the guidance offered in the text of the announcement and Fed Chair Powell's press conference. This will be the first Fed meeting in long time where there has been such an even split in forecasted outcomes. Any time an outcome is guaranteed to surprise about half the market, it's pretty much impossible to avoid volatility. As always, keep in mind that volatility has no directional connotation. Things could get better or worse!
3 weeks 1 day ago
Checkout newsLow Volatility in Mortgage Rates, But Next Week Could be Very Different
We've talked a lot about why the Fed rate cut will have no additional positive impact on mortgage rates next week. Everything the market can already reasonably foresee about what the Fed might do is already reflected in today's mortgage rates. In other words, much of the sharp mortgage rate decline seen in recent months is simply a reflection of the growing odds for lower Fed Funds Rates in the near-term future. But while a Fed rate cut doesn't guarantee lower mortgage rates, the info that comes out on Fed day can still cause tremendous volatility. In this particular case, one reason is that the market is fairly evenly split on whether the Fed will cut by 0.25% or 0.50%. Either way, half of the market will be surprised and that's a recipe for volatility. In addition, there are other documents released concurrently with the rate announcement that can cause rapid movement in longer term interest rates for better or worse. That happens at 2pm ET on Wednesday afternoon. 30 minutes later, Fed Chair Powell will field questions from reporters--another Fed day event with the potential to send rates in either direction. By the time all is said and done, we may have seen several back-and-forth moves on Wednesday. Volatility could continue into Thursday, but while mortgage rates could definitely end up being noticeably higher or lower by the end of the week, the bigger changes in the bigger picture would depend on the most closely-watched economic data due out in the first week of October.
3 weeks 4 days ago
Checkout newsMortgage Rates Move Slightly Higher For First Time This Month
While it's true that there have only been 8 business days so far this month, it's also true that today is the only one of the 8 where mortgage rates haven't been lower than the previous day for the average lender. That's the bad news. The good news is that today's increase was modest. In fact, if you take yesterday out of the equation the average lender's conventional 30yr fixed rates are easily at the the lowest levels since February 2023. That's a drop of more than .75% in just over a month, which is a quick pace of improvement. It's also part of the longest trend of rate improvement in more than 3 years. Many times, when it comes to movement in financial markets, "too much of a good thing" means you might see the opposite of that thing--at least to some extent. That's certainly a possibility, but it depends on incoming economic data and the market's reaction to the Fed's rate outlook next week. NOTE: we're not as interested in the Fed's rate cut because that part of the policy shift is already reflected in today's interest rates. Rather, if the Fed communicates a more aggressive rate cut outlook in the upcoming months, rates could continue lower. Conversely, if the rate cut outlook underwhelms, there's room for rates to bounce back up and hold steady until the next major round of economic data.
3 weeks 5 days ago
Checkout newsMortgage Rates Lowest Since February 2023
Mortgage rates moved lower again today despite a key inflation report coming in higher than expected. This is counterintuitive for anyone who's been following rate movement closely over the past few years. During that time, inflation reports have had a strong, direct connection to mortgage rate volatility with higher inflation begetting higher rates and vice versa. But as we discussed yesterday, the prominent role of inflation data is fading to that of a supporting actor. It is now the labor market that is almost always on center stage. It's not that inflation doesn't matter or that it couldn't matter again in the future. Rather, it's just that today's Consumer Price Index (CPI) was only one report. It would have been unable to undo the net impact from the past 3 CPI reports which all conveyed significant progress toward the Fed's 2.0% annual inflation target (in fact, if you asked just those 3 reports, we're already below 2.0% annually). Despite all of the above, the bond market (which dictates rates) still gyrated a bit this morning. It simply wasn't enough to derail the mortgage rate improvements. Many lenders were relieved to see an absence of negative backlash. Their pricing improvements suggested they had been waiting to see how today's data would impact the market. Do note, however, that some lenders improved rates yesterday afternoon and are not much better today. Also note that due to the structure of the underlying market for mortgage backed securities, there are certain pricing advantages at rates that end in .125% and .625%. As such, when broad national averages (i.e. "best case scenarios") approach 6.125%, there can be larger-than-normal swings in that direction that won't readily apply to loan scenarios at higher rates.
3 weeks 6 days ago
Checkout newsAnother Long-Term Low For Rates Ahead of an Inflation Report That Was Once a Really Big Deal
Mortgage rates are based on trading in the bond market and bonds consistently take cues from economic data. Among the data, some reports are vastly more important than others--as we've seen after several recent examples of the jobs report. The Consumer Price Index (CPI) is another extremely important report. At least it can be, at times. On many occasions in the past few years, CPI had a bigger impact on rates than the monthly jobs report, but times are changing. Inflation metrics have cooled down significantly and the trend has been more stable. In fact, the last 3 CPI reports were consistent with inflation being under the Fed's 2.0% annual target (the next 9 would need to play ball in similar fashion for official, final victory). The Fed figures that victory is highly likely at this point, considering some of the softening in other economic data. Even if tomorrow's CPI were to come in much higher than expected, it wouldn't be enough to push rates too much higher in the big picture. As for today, there were no significant reports and bonds continued drifting into stronger territory. The average mortgage lender was able to offer just slightly lower rates compared to yesterday's latest levels. This means we're at another 17 month low.
4 weeks ago
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