Today's mortgage and refinancing rates
Average mortgage rates fell slightly yesterday. And the mostly slow drift towards lower interest rates continues.
Mortgage rates could fall further next week. At least there's nothing in my crystal ball to suggest they won't. But with so much uncertainty at the moment, I work more on hunches than on reason.
Find and lock a cheap rate (July 31, 2021)
Current mortgage and refinancing rates
Effective interest rate*
Conventional 30 years
Conventionally fixed for 15 years
Conventional 20 years old
Conventionally fixed for 10 years
30 years permanent FHA
Fixed FTA for 15 years
5/1 ARM FHA
30 years of permanent VA
15 years fixed VA
Prices are provided by our partner network and may not reflect the market. Your rate can be different. Click here for an individual price offer. View our rate assumptions here.
Find and lock a cheap rate (July 31, 2021)
COVID-19 Mortgage Updates: Mortgage lenders are changing interest rates and rules due to COVID-19. Click here to learn how the coronavirus could affect your home loan.
Should You Lock A Mortgage Rate Today?
It was a great July for mortgage rates. Based on the Mortgage News Daily numbers, they started the month at 3.18% (for a 30-year fixed-rate mortgage) and finished the month at 2.84%. That's a decrease of 34 basis points (abbreviated BPS – one basis point is one hundredth of 1%), which is worth it in any book.
True, 24 of those basis points were the result of the bond market panic attack mid-month. But that still leaves 10 that were just the market that followed its current trend. And historically, a 10 bps drop would be cause for celebration.
Regular readers will know that none of this makes sense to me. And in normal times, mortgage rates would go up.
But I'm starting to feel like a cross between Cassandra (the ancient Trojan prophet, whose statements were always correct but never believed) and King Cnut, who famously ordered the tide to stop and feet to get wet.
Today, for the first time in months, I am changing my personal rate lock recommendations. But I hate to do this because I (and most other professional mortgage rate watchers) believe that at some point these rates will rise. So keep a close eye on this daily column. Because the following recommendations can change at any time:
LOCK when close in 7th DaysLOCK when close in fifteen DaysHOVER when close in 30th DaysHOVER when close in 45 DaysHOVER when close in 60 Days
With so much uncertainty right now, however, your instincts could turn out to be as good as mine – or better. So let your gut instinct and your personal risk tolerance guide you.
What is driving current mortgage rates?
It's hard to say what is driving current mortgage rates. Usually they rise when the economy is improving and fall when the economy is bad. They also tend to rise when inflation is high and decrease when inflation is weak.
But these rules do not currently apply. And it's hard to say why.
Of course, many financial journalists offer explanations. But to me they read like rationalizations and contain too many contradictions to make a conclusive statement.
To understand this, you must first recognize that bond prices and yields move in opposite directions. So when a lot of people want to buy bonds, their prices go up, which is just supply and demand. But this reduces their income. Because if you pay more for a fixed income security, your return will be lower. In other words, the more you pay to get the same income, the lower your rate of return (income) will be.
So today's low bond yields are due to more people buying bonds. And that also applies to mortgage interest. Because they are determined by the returns on mortgage-backed securities (MBSs), which are a type of bond.
Why Buy Bonds?
Investors want to balance their portfolios with higher yields, riskier assets like stocks and lower yields, safer assets like bonds. At the safest end of that spectrum are US Treasuries, Notes, and Bonds. But MBS are also considered to be fairly safe.
Investors are currently stocking up on safe investments, which is why the returns on Treasury products and MBS are so low. That's understandable if you think the economic recovery is likely to slow. But the strange thing is that they also buy stocks. The US stock market index hit an all-time high on Monday. And people tend to buy stocks when economic confidence is high.
Meanwhile, even many of those who are currently buying bonds expect yields to rise. Yesterday NASDAQ.com stated:
Record-low real yields, however, are often viewed as a worrying sign as they reflect a pessimistic view of future economic growth, leaving many bond bears unimpressed as they expect a big rebound in economic growth this year. Fifteen of the 23 banks and money managers surveyed by Reuters said they still expect 10-year US yields to be around 2% by the end of 2021.
– NASDAQ.com, "Global Bonds July Has Best Month Since 2020 COVID Meltdown," July 30, 2021
The expected 2% return on 10-year US Treasuries by the end of this year would be quite a jump. Because yesterday this yield closed at 1.23%. Chances are that mortgage rates would rise by a similar proportion. And when that happens, those rates could go up to 4% or higher. Until December 31st!
Just read the Nasdaq quote again. Do you notice any contradictions? Yes, bond bears are a strange breed. But also like that.
Economic reports next week
Just like this week, there are plenty of important economic reports coming up next week. But this week has largely been dismissed by investors. And maybe it will be the same with the coming ones.
Most likely to cause a stir is the official monthly report on the employment situation from Friday. That has been a bit disappointing in the last few months. And better numbers next week may finally convince bond investors that the economic recovery is continuing, which should drive mortgage rates higher.
None of the other economic reports listed below are unlikely to cause much movement in the markets unless they include shockingly good or bad data. Additionally, regular readers know that investors have ignored most of the economic reports in the past few months. Therefore, the effects of the following may differ from the usual ones:
Monday – July Manufacturing Index from the Institute for Supply Management (ISM). Plus construction spending in June Tuesday – July car sales. Plus June Factory Orders Wednesday – ADP Private Sector Employment Report for July. Plus July ISM Service Index Thursday – Weekly new applications for unemployment insurance until July 31st Friday – Report on the employment situation in July, consisting of payrolls outside of agriculture, unemployment rate and average hourly wage
Look for Friday's employment report.
Find and lock a cheap rate (July 31, 2021)
Mortgage rates forecast for next week
With little confidence I guess Mortgage rates could be a little lower this week. However, this is based solely on the general direction of travel over the past few months. And an excellent job report on Friday could drive those rates up.
Mortgage and refinancing rates usually move in parallel. And a gap that had grown between the two was largely closed with the recent abolition of the disadvantageous market refinancing fee.
This is how your mortgage rate is determined
Mortgage and refinance rates are generally determined by prices on a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.
And that depends heavily on the economy. So mortgage rates are typically high when things are going well and low when the economy is in trouble.
But you play a huge role in determining your own mortgage rate in five ways. You can significantly influence it by:
Rummage For Your Best Mortgage Rate – They Vary A Lot From Lender To Lender Improve Your Credit Score – Even A Small Boost Can Make A Big Difference To Your Interest Rate And Payments Save The Biggest Down Payment You Can – Lenders Like You To Be Real In This Game Keeping Your Other Borrowings Modest – The lower your other monthly obligations, the higher the mortgage you can afford. Choose Your Mortgage Carefully – Are You Better Off With A Conventional, FHA, VA, USDA, Jumbo, Or Other Loan?
The time you spend getting these ducks in a row can result in you winning lower prizes.
Remember, it's not just a mortgage rate
Remember to count all of the upcoming home ownership costs when figuring out how much a mortgage you can afford. So concentrate on your "PITI" This is yours P.rincipal (pays back the amount borrowed), IInterest (the price of borrowing), (property) TAxles and (homeowners) IInsurance. Our mortgage calculator will help you with this.
Depending on your mortgage type and the amount of your down payment, you may also need to pay for mortgage insurance. And that can easily reach three digits every month.
But there are other potential costs as well. So you have to pay community contributions if you choose to live with an HOA. And wherever you live, you have to expect repair and maintenance costs. There is no landlord to call if something goes wrong!
After all, it's hard to forget about closing costs. You can see this in the specified annual percentage rate (APR). Because this effectively spreads it over the term of your loan and is thus higher than your pure mortgage interest.
But you may be able to get help with these closing costs and your down payment, especially if you are a first-time buyer. Read:
Down payment assistance programs in each state for 2021
Mortgage rate methodology
The mortgage reports receive daily interest rates based on selected criteria from multiple credit partners. We'll find an average interest rate and an APR for each type of loan shown on our chart. Since we average a range of prices, it will give you a better idea of what you might find in the market. In addition, we determine average interest rates for the same types of credit. For example FHA fixed with FHA fixed. The result is a good snapshot of the daily rates and how they change over time.