Mortgage charges at the moment, August 20, 2020, plus lock suggestions

Forecast plus what’s driving mortgage rates today

Average mortgage rates nudged up yesterday, canceling out Monday’s fall. Add in Tuesday’s unchanged, and they’ve gone nowhere so far this week. Conventional loans today start at 3.188% (3.188% APR) for a 30-year, fixed-rate mortgage.

Yesterday afternoon saw publication of the minutes of the last meeting of the Federal Reserve’s policy committee. Their grim contents sobered investors and headed off what might have been a sharper rise in mortgage rates as markets had changed course during the morning. But those markets currently have a near-magical ability to shrug off bad news. So we’ll see if their mood changes as today progresses.

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• 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.

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Market data affecting (or not) today’s mortgage rates

Are mortgage rates again aligning more closely with the markets they traditionally follow? It’s certainly an inconsistent relationship, confused by behind-the-scenes interventions by the Federal Reserve. That is currently buying mortgage bonds and so invisibly influencing rates.

And there’s always the chance of some off-the-wall, one-time event messing up the best-calibrated calculations, as happened last Thursday and Friday.

But, if you still want to take your cue from markets, earlier this morning things were looking better for mortgage rates today. Why? Investors face a pile of bad news: from yesterday’s Fed minutes, to this morning’s worse-than-expected jobs figures, to rising COVID-19 cases in countries that previously seemed to have managed the pandemic well.

The numbers

Here’s the state of play this morning at about 9:50 a.m. (ET). The data, compared with about the same time yesterday, were:

The yield on 10-year Treasurys inched lower to 0.64% from 0.65%. (Good for mortgage rates.) More than any other market, mortgage rates normally tend to follow these particular Treasury bond yields, though less so recently
Major stock indexes were mostly lower. (Good for mortgage rates.) When investors are buying shares they’re often selling bonds, which pushes prices of those down and increases yields and mortgage rates. The opposite happens when indexes are lower
Oil prices moved lower to $41.79 a barrel from $42.63 (Good for mortgage rates* because energy prices play a large role in creating inflation and also point to future economic activity.) 
Gold prices slumped to $1,936 from $2,003 an ounce. (Bad for mortgage rates*.) In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower.
 CNN Business Fear & Greed index inched down to 69 from 70 out of a possible 100 points. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are better than higher ones

*A change of a few dollars on gold prices or a matter of cents on oil ones is a fraction of 1%. So we only count meaningful differences as good or bad for mortgage rates.

Rate lock advice

My recommendation reflects the success so far of the Fed’s actions in keeping rates uberlow combined with relatively benign markets. I personally suggest:

LOCK if closing in 7 days
LOCK if closing in 15 days
FLOAT if closing in 30 days
FLOAT if closing in 45 days
FLOAT if closing in 60 days

But it’s entirely your decision. And you might wish to lock anyway on days when rates are at or near all-time lows.

The Fed may end up pushing down rates even further over the coming weeks, though that’s far from certain. And, separately, continuing bad news about COVID-19 could have a similar effect through markets. (Read on for specialist economists’ forecasts.) But you can expect bad patches when they rise.

As importantly, the coronavirus has created massive uncertainty — and disruption that seems capable of defying in the short term all human efforts, including perhaps the Fed’s. So locking or floating is a gamble either way.

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Important notes on today’s mortgage rates

That FHFA debacle

This is the story behind last Thursday and Friday’s sharp increases in mortgage rates. If you’re planning to refinance to a loan backed by Fannie Mae or Freddie Mac, you may have to pay more for the privilege. Because the Federal Housing Finance Agency, which regulates the two enterprises, has just imposed a new, additional closing cost.

Unless your loan closes before the end of this month, the FHFA will make you pay an additional 0.5% of the loan amount, supposedly to cover additional market risk. For a $200,000 loan, that’s $1,000 added to your closing costs (divide your loan amount by 200).

However, if you’ve already locked in your refinance, it may be the lender who picks up the tab. But mortgage companies often operate on wafer-thin margins. So they’ve passed on the cost — through higher mortgage rates — to new applicants (and those who are yet to lock) for all types of mortgages. Hence the higher mortgage rates all round on the last two days of the last working week.

The industry is up in arms. And, on Aug. 13, some 20 bodies signed a joint statement condemning the FHFA’s move. Signatories ranged from the American Bankers Association to the Center for Responsible Lending and from the Mortgage Bankers Association to the National Fair Housing Alliance. If the federal agency caves, we could see rates fall sharply again. But you might not want to hold your breath.

The rate you’ll actually get

Naturally, few buying or refinancing will actually qualify for the lowest rates you’ll see bandied around in some media and lender ads. Those are typically available only to people with stellar credit scores, big down payments and robust finances (“top-tier borrowers,” in industry jargon). And, even then, the state in which you’re buying can affect your rate.

Still, prior to locking, everyone buying or refinancing typically stands to lose when rates rise or gain when they fall.

When movements are very small, many lenders don’t bother changing their rate cards. Instead, you might find you have to pay a little more or less on closing in compensation.

The future

Overall, we still think it possible that the Federal Reserve’s going to drive rates even lower over time. And, following the last meeting of its policy committee, the organization confirmed that it planned to maintain this strategy for as long as proves necessary. At a news conference, Fed chair Jay Powell promised:

We are committed to using our full range of tools to support our economy in this challenging environment.

However, there was a lot going on here, even before the green shoots of economic recovery began to emerge. There’s even more now. And, as we’ve already seen, the Fed can only influence some of the forces that affect mortgage rates some of the time. So nothing is assured.

Read “For once, the Fed DOES affect mortgage rates. Here’s why” to explore the essential details of that organization’s current, temporary role in the mortgage market.

Higher rates to deter demand

We may see a repeat of a phenomenon that occurred earlier this year. That’s when lenders’ offices are so overwhelmed by demand for mortgages and refinances that they can’t cope.

Couple that with logistical issues as many employees work from home due to the pandemic, and you can see that some lenders might be facing administrative meltdown.

To try to deter some of the excess demand, those lenders may artificially inflate the rates they offer. It’s the only way they can stop their people from drowning in paperwork and its digital-era equivalent.

And neither markets nor the Fed can influence how this part of the pricing mechanism affects mortgage rates.

Freddie Mac’s weekly rates

Don’t be surprised if Freddie’s Thursday rate reports and ours rarely coincide. To start with, the two are measuring different things: weekly and daily averages.

But also, Freddie tends to collect data on only Mondays and Tuesdays each week. And, by publication day, they’re often already out of date.

By all means, rely on Freddie’s accuracy over time. But not necessarily each day or week.

What economists expect for mortgage rates

Mortgage rates forecasts for 2020

The only function of economic forecasting is to make astrology look respectable. — John Kenneth Galbraith, Harvard economist

Galbraith made a telling point about economists’ forecasts. But there’s nothing wrong with taking them into account, appropriately seasoned with a pinch of salt. After all, who else are we going to ask when making financial plans?

Fannie Mae, Freddie Mac and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.

The numbers

And here are their latest forecasts for the average rate for a 30-year, fixed-rate mortgage during each quarter (Q1, Q2 …) in 2020. Fannie updated its forecasts on Monday and the MBA refreshed its on July 15. Freddie’s, which is now a quarterly report, was published in mid-June.

Fannie Mae
Freddie Mac

Monday’s update from Fannie included the prediction of a 2.9% average rate for the fourth quarter of this year. That was the first time we’ve seen a forecast from any of these organizations for a sub-3.0% rate during 2020.

Of course, none of these quarterly forecasts excludes daily or weekly averages below the levels they suggest during any quarter. After all, quarterly averages can include some quite sharp differences between highs and lows.

Fannie was a bit more optimistic about rates in its August forecast, as was the MBA in its July one. And that’s leaving Freddie’s June (quarterly) one looking stale.

What should you conclude from all this? That nobody’s sure about much but that wild optimism about the direction of mortgage rates might be misplaced.

Further ahead

The gap between forecasts is real and widens the further ahead forecasters look. So Fannie’s now expecting that rate to average 2.8% during the first quarter of next year and then inch down to 2.7% for the second half.

Meanwhile, Freddie’s anticipating 3.2% throughout that year. And the MBA thinks it will be back up to 3.4% for the first half of 2021 and 3.5% for the second. Indeed, the MBA reckons it will average 3.7% during 2022. You pays yer money …

Still, all these forecasts show significantly lower rates this year and next than in 2019, when that particular one averaged 3.94%, according to Freddie Mac’s archives.

And never forget that last year had the fourth-lowest mortgage rates since records began. Better yet, this year may well deliver an all-time annual low — barring shocking news. Of course, shocking news is a low bar in 2020.

Mortgages tougher to get

The mortgage market is currently very messy. And some lenders are offering appreciably lower rates than others. When you’re borrowing big sums, such differences can add up to several thousands of dollars over a few years — more on larger loans and over longer periods.

Worse, many have been putting restrictions on their loans. So you might have found it harder to find a cash-out refinance, a loan for an investment property, a jumbo loan — or any mortgage at all if your credit score is damaged.

All this makes it even more important than usual that you shop widely for your mortgage and compare quotes from multiple lenders.

Economic worries

Mortgage rates traditionally improve (move lower) the worse the economic outlook. So where the economy is now and where it might go are relevant to rate watchers.

Yesterday’s release of the minutes of the July meeting of the Fed’s top policy committee (the Federal Open Market Committee or FOMC) made sobering reading. In particular, they contained concerns about the:

Uncertainty and long-term economic risks created by the pandemic
Expiration of additional federal benefits under the Cares Act “against the backdrop of a still-weak labor market”
Slowing of the initial recovery as earlier in the summer the coronavirus moved into previously unaffected parts of the country
Possibility of banks and other lenders soon tightening their lending criteria in ways that could “restrain the availability of credit to households and businesses”

Perhaps most worryingly, the minutes also said:

The projected rate of recovery in real GDP, and the pace of declines in the unemployment rate, over the second half of this year were expected to be somewhat less robust than in the previous forecast.

So the FOMC painted an unhappy picture. But it’s not the first time it’s done so. And markets seem adept at ignoring it — as long as it promises to keep shoveling money into the economy. It repeated just that promise in those minutes.

One final downer for investors was something missing from the minutes. Some had hoped the Fed would try managing long-term interest rates by effectively capping yields on long-term government bonds, something called yield curve control. It declined to do so.

The president’s stimulus announcements

In an attempt to cut through the partisan logjam in Congress, President Donald Trump signed a number of executive orders and memorandums on Aug. 8. These were intended to provide an economic stimulus to counter the effects of the coronavirus pandemic.

Some hoped the president’s initiative might be a catalyst for legislators on Capitol Hill, who have failed to come up with their own, more sustainable stimulus package. But no. The Senate is now in recess until early September.

The impact of the executive orders is yet to become clear. There are certainly plenty of practical and possibly legal hurdles to be overcome before they deliver any tangible benefits.

For example, on Tuesday, about 30 employers’ groups, led by the U.S. Chamber of Commerce, wrote to the White House to say they thought their members were unlikely to implement the president’s measure concerning the withholding of tax. They cited technical and logistical challenges. But their underlying concern seemed to be the potential tax liabilities employees might face if the administration fails to persuade Congress to forgive taxes that haven’t been withheld.

Stimulus an urgent need

The threats to the economy that stem from the current Congressional deadlock are obvious. And you can see why the president sought to intervene.

There may be sound ideological and long-term economic reasons for discontinuing additional unemployment benefits. But, in the short term, that might impact millions, including those who don’t directly receive them.

Most obviously, landlords may not receive their rents and have to go to the expense of evicting tenants and finding new ones, while being unable to pay their own mortgages. And lenders (those who provide credit cards, personal loans, auto loans and so on, as well as mortgages) could see defaults, repossessions and foreclosures soar across broad population groups.

As importantly, some economists warn that letting the federal benefit lapse risks hitting consumer spending, something that could quickly affect the wider economy. On Aug. 3, The Financial Times had a headline, “US economy in peril as unemployment payments expire.”

Consumers key to US economy

Think The Financial Times was exaggerating? Maybe. But the US economy relies heavily on consumer spending for its growth.

According to the Federal Reserve Bank of St. Louis, personal consumption expenditures contributed 67.1% of total gross domestic product in the second quarter of 2020. You might think that the removal of the now-expired $600 federal weekly unemployment benefit is likely to hit that hard.

So, even leaving aside the human misery, political paralysis could prove costly for the economy. Meanwhile, a small-business relief program expired Aug. 8.

COVID-19 still a huge threat

The COVID-19 pandemic and its economic implications are the single biggest influences on markets at the moment. And nationwide trends for new infections and deaths are looking encouraging.

But there remain plenty of states, cities, areas and neighborhoods that are hot spots with rising infections and deaths. And we’re not yet past seeing some shocking figures. Last Wednesday’s national death toll was the highest on a single day since mid-May. And, on Aug 8, we saw the total number of infections surpass 5 million. 

In a White House virus briefing on July 21, President Donald Trump warned:

It will probably, unfortunately, get worse before it gets better. Something I don’t like saying about things, but that’s the way it is.

Non-pandemic news

Although COVID-19 news dominates both generally and in markets, there’s still room for other fears. And concerns over trade and foreign relations with China are currently elevated.

As The Financial Times suggested on July 24:

Tensions between the world’s two superpowers have risen to their most dangerous level in decades as the coronavirus pandemic rages through the US and Beijing cracks down on Hong Kong’s autonomy.

And that was before more recent tensions arose. Those include the president playing hardball over Tik-Tok and WeChat. In a tit-for-tat move, China last Monday announced sanctions on a number of US officials, including Senators Cruz and Rubio.

Meanwhile, the president on Tuesday said he had canceled planned trade talks with China, though the Chinese government announced overnight that it expected them to resume shortly. And, yesterday, the administration said it was axing or suspending three bilateral agreements with Hong Kong.

Domestic threat

Most important economic data have recently been looking good. But you need to see them in their wider context.

First, they follow disastrous lows. You expect record gains after record losses.

And, secondly, the pandemic is far from over, with some places still recording frightening numbers of new cases and deaths.

So, while good news is more than welcome, it can mask the devastation wreaked on the economy by COVID-19.


Some concerns that remain valid include:

We’re currently officially in recession

Unemployment is expected to remain elevated for the foreseeable future — In a blow, today’s unemployment figures were back above a million (1,106,000). Last week’s new claims for unemployment insurance came in at 963,000, which everyone hoped was the start of a steadily improving trend. But that was the first time they’d fallen below the million mark in 20 weeks. And today may suggest it won’t be an easy, downhill ride

The first official estimate of gross domestic product during the second quarter showed an annualized contraction of 32.9%. When you look at the second quarter in isolation (not annualized), the fall in economic output was about 9.5% in those three months

On June 1, the Congressional Budget Office reduced its expectations of US growth over the period between 2020 and 2030. Compared with its forecast in January, the CBO now expects America to miss out on $7.9 trillion in growth over that decade

As International Monetary Fund (IMF) Chief Economist Gita Gopinath put it a while ago: “We are definitely not out of the woods. This is a crisis like no other and will have a recovery like no other.”

Third quarter GDP

Need cheering up after all that? The Federal Reserve Bank of Atlanta‘s GDPnow reading suggests we might see growth in the third quarter of 25.6%, according to an Aug. 18 update.

But, again, that’s an annualized rate. So it has to be compared with the 32.9% lost in the second quarter. And there’s still time for the economy to fall back if more lockdowns are needed or if federal aid — whether those announced by the president or some subsequent Congressional package — takes a long time to implement.

Still, we might be looking at a light at the end of this pitch-dark tunnel.

Markets seem untethered from reality

Many economists are warning that stock markets may be underestimating both the long-term economic impact of the pandemic and its unpredictability. And some fear that we’re currently in a bubble that can only bring more pain when it bursts.

Over the weekend, CNN Business quoted two analysts with such fears. First up was FactSet analyst Marc Evans, who reported on the S&P 500 index:

Profits for the companies that make up that index plummeted nearly 34% in the second quarter. That was the worst drop in five years
Sales for those companies declined almost 9% That was the worst drop in nearly four years.
Evans now expects earnings for these companies to drop nearly 19% in 2020, way worse than the 1.2% anticipated in March

The second analyst in the CNN report was Barry Bannister, head of institutional equity strategy at Stifel. He thinks the S&P 500 could currently be overvalued by as much as 10%. And, CNN Business said:

Bannister worries that investors are underestimating the risk of another surge in coronavirus cases leading to more damage to the job market and earnings growth later this year. He also believes 2021 earnings estimates are too high and will need to be revised downward.

Economic reports this week

After some eventful weeks, we’re due a quiet period. And here it is.

Indeed, the report most likely to move markets is Thursday’s weekly jobless figures, which used to be such an also-ran that we usedn’t to report them.

However, Wednesday sees publication of the minutes of the last meeting of the Federal Open Market Committee (FOMC). That’s the Federal Reserve policy committee that sets rates. And investors always pore over these minutes, hoping to divine something more than was said in the report that immediately followed the actual meeting and the subsequent news conference.

Forecasts matter

More normally, any economic report can move markets, as long as it contains news that’s shockingly good or devastatingly bad — providing that news is unexpected.

That’s because markets tend to price in analysts’ consensus forecasts (below, we use those reported by MarketWatch) in advance of the publication of reports. So it’s usually the difference between the actual reported numbers and the forecast that has the greatest effect.

And that means even an extreme difference between actuals for the previous reporting period and this one can have little immediate impact, providing that difference is expected and has been factored in ahead.

This week’s calendar

This week’s calendar of important, domestic economic reports comprises:

Monday: Nothing

Tuesday: July housing starts (actual 1.496 million*; forecast 1.252 million) and building permits (actual 1.495 million*; forecast 1.333 million)

Wednesday: No reports. But the FOMC minutes are published at 2 p.m. (ET)

Thursday: Weekly new jobless claims to August 15 (actual 1,106,000 new claims for unemployment insurance; forecast 910,000)

Friday: July existing home sales (forecast 5.5 million*)

*These figures are seasonally adjusted annual rates (SAARs)

Chances are, this week’s reports will barely raise a yawn on Wall Street.

Rate lock recommendation

The basis for my suggestion

Other than on exceptionally good days, I suggest that you lock if you’re less than 15 days from closing. But we’re looking at a personal judgment on a risk assessment here: Do the dangers outweigh the possible rewards?

At the moment, the Fed mostly seems on top of things (though rises since its interventions began have highlighted the limits of its power). And I think it likely it will remain so, at least over the medium term.

But that doesn’t mean there won’t be upsets along the way. It’s perfectly possible that we’ll see periods of rises in mortgage rates, not all of which will be manageable by the Fed.

That’s why I’m suggesting a 15-day cutoff. In my view, that optimizes your chances of riding any rises while taking advantage of falls. But it really is just a personal view.

Only you can decide

And, of course, financially conservative borrowers might want to lock immediately, almost regardless of when they’re due to close. After all, current mortgage rates are near record lows and a great deal is assured.

On the other hand, risk-takers might prefer to bide their time and take a chance on future falls. But only you can decide on the level of risk with which you’re personally comfortable.

If you are still floating, do remain vigilant right up until you lock. Make sure your lender is ready to act as soon as you push the button. And continue to watch mortgage rates closely.

When to lock anyway

You may wish to lock your loan anyway if you are buying a home and have a higher debt-to-income ratio than most. Indeed, you should be more inclined to lock because any rises in rates could kill your mortgage approval. If you’re refinancing, that’s less critical and you may be able to gamble and float.

If your closing is weeks or months away, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible. However, the longer your lock, the higher your upfront costs. On the flip side, if a higher rate would wipe out your mortgage approval, you’ll probably want to lock in even if it costs more.

If you’re still floating, stay in close contact with your lender.

Closing help

At one time, we were been providing information in this daily article about the extra help borrowers can get during the pandemic as they head toward closing.

You can still access all that information and more in a new, stand-alone article:

What causes rates to rise and fall?

In normal times (so not now), mortgage interest rates depend a great deal on the expectations of investors. Good economic news tends to be bad for interest rates because an active economy raises concerns about inflation. Inflation causes fixed-income investments like bonds to lose value, and that causes their yields (another way of saying interest rates) to increase.

For example, suppose that two years ago, you bought a $1,000 bond paying 5% interest ($50) each year. (This is called its “coupon rate” or “par rate” because you paid $1,000 for a $1,000 bond, and because its interest rate equals the rate stated on the bond — in this case, 5%).

Your interest rate: $50 annual interest / $1,000 = 5.0%

When rates fall

That’s a pretty good rate today, so lots of investors want to buy it from you. You can sell your $1,000 bond for $1,200. The buyer gets the same $50 a year in interest that you were getting. It’s still 5% of the $1,000 coupon. However, because he paid more for the bond, his return is lower.

Your buyer’s interest rate: $50 annual interest / $1,200 = 4.2%

The buyer gets an interest rate, or yield, of only 4.2%. And that’s why, when demand for bonds increases and bond prices go up, interest rates go down.

When rates rise

However, when the economy heats up, the potential for inflation makes bonds less appealing. With fewer people wanting to buy bonds, their prices decrease, and then interest rates go up.

Imagine that you have your $1,000 bond, but you can’t sell it for $1,000 because unemployment has dropped and stock prices are soaring. You end up getting $700. The buyer gets the same $50 a year in interest, but the yield looks like this:

$50 annual interest / $700 = 7.1%

The buyer’s interest rate is now slightly more than 7%. Interest rates and yields are not mysterious. You calculate them with simple math.

Mortgage rates FAQ

What are today’s mortgage rates?

Average mortgage rates today are as low as 2.875% (2.875% APR) for a 30-year, fixed-rate conventional loan. Of course, your own interest rate will likely be higher or lower depending on factors like your down payment, credit score, loan type, and more.

Are mortgage rates going up or down?

Mortgage rates have been extremely volatile lately, due to the effect of COVID-19 on the U.S. economy. Rates took a dive recently as the Fed announced low-interest rates across the board for the next two years. But rates could easily go back up if there’s another big surge of mortgage applications or if the economy starts to strengthen again.

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.

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