Current Mortgage Rates and Rate Lock Recommendation

Today’s mortgage rates opened mostly lower, as expected. There are no scheduled economic releases today, and the financial data below are slightly biased in favor of lower mortgage rates.

Mortgage rates opened mostly lower, carrying some momentum from yesterday. Financial data are stable or slightly favorable; expect this morning's rates to hold or edge slightly lower today.

If you're closing soon, you should probably lock. Interest rates are bumping up and down within a normal range but are rising overall. However, if you need to float for a day or two to get into a cheaper locking tier (a 7-day lock instead of a 15-day lock, for instance), you can probably do so safely. With almost no economic releases scheduled this week, mortgage rates should remain fairly stable.

Locking isn't always a no-brainer for longer periods, even in a rising rate environment, because locking a loan costs money. The interest rate you'll get with a 7-day lock is lower than that of a 15-day lock, and so on. Locks longer than 30 days often come with upfront fees (.5% is typical for 60 days). If you can get a longer lock at a decent cost, you should probably go for it.

Today's indicators point to stable or lower rates. Keep an eye on oil prices and the 10-year Treasury yields if you're contemplating a rate lock. Here are the data influencing mortgage rates today:

Almost anything that impacts the world economy can cause mortgage interest rates to change. In most cases, news that indicates economic weakening is good for mortgage rates. Investors switch to safer investments like Treasuries or mortgage-backed securities (MBS) and are willing to accept lower returns in exchange for safety.

News that suggests economic strengthening is generally bad for mortgage rates. This is because economic heat can also cause fears of inflation. Investors then demand higher interest rates to compensate for inflationary risk, because no one wants to be earning 3% in a 4% world.

This week will bring very few economic releases and none of them are terribly important to mortgage rates. We will have to take our cues from movements in financial markets and events like speeches from Federal Reserve Board members.

In general, positive economic news causes interest rates (including mortgage rates) to increase. That’s because an expanding economy can increase the rate of inflation, and investors demand higher returns when they are concerned about inflation. When the economy is shaky, investors become less worried about how much their money earns and more worried about retaining their principal. So demand for safe investments like bonds increases, driving their prices up and interest rates down. The example below illustrates this.

Bond issuers create bonds paying a specific interest rate at a predetermined price, called "par." Par pricing is normally $1,000 for a $1,000 bond, and the interest rate for that bond is called the "coupon rate." If you buy a $1,000 bond paying 5%, your actual yield would be the same as the coupon rate.

But bonds don't stay at par pricing—they are subject to market supply and demand just like shares of stock are, and their price can rise and fall all day long. These price movements are triggered by events that impact the global economy. Events that signal economic heating and possible inflation cause the demand for bonds to fall and rates to increase. While events that indicate economic instability or failure push investors into safe havens like bonds. Demand for these instruments causes their prices to rise and rates to fall. The examples below illustrate the upward and downward interest rate movements in response to economic conditions.

Suppose that after you purchase your bond, the economy becomes troubled. Perhaps by political instability or a global pandemic. Investor demand for safe places to put their money skyrockets and 5% becomes highly desirable. You sell your $1,000 bond to an investor for $1,500. The buyer gets the same $50 a year in interest that you were getting. It’s still 5% of the $1,000 coupon. However, the yield drops.

The opposite occurs when the economy improves. Suppose that after you purchased your $1,000 bond, the pandemic is resolved with the invention of a vaccine, and threats of war subside in volatile countries. The stock market is taking off and 5% doesn’t look so great anymore. Investor demand falls for your bond and you can only sell it for $750. The buyer pays less and enjoys a higher yield.

The relationship between bond prices and interest rates is predictable. It’s simple math.