When people go out shopping for a new house, either a first home or a move-up, they can get pretty picky about some details: does the bathroom have double sinks, are the kitchen counters granite, does the house have outstanding curb appeal. Shopping for a mortgage is not nearly as interesting (or as much fun), but it can be just as important as finding the right house.
The good news is that there is a ton of information available on mortgage rates. The bad news is that the information changes quickly, sometimes more than once a day. Any home buyer would have a hard time trying to keep up with the movements in mortgage rates.
If there is one word that describes current mortgage rates, it’s “volatility.” You might never know it from lender marketing and advertising, but mortgage rates change virtually constantly. Weekly data, such as the Freddie Mac report that appears every Thursday, provide a simple average that is relatively easy to understand, but often it doesn’t represent current market levels.
For all of 2015, Freddie Mac’s reported mortgage rates varied in a range of 3.63% to 4.09%. That’s a difference of nearly four basis points, and depending on your credit score and other loan qualifications, the higher rate could cost you around $10,000 over the life of the loan. And because the amount of interest you pay in the first years of the loan exceeds the principal amount of the loan, the lender gets paid first, which means you build up equity in your home at a slower pace.
Influences on mortgage rates include central bank policy rates and demand among investors for bonds and mortgage-backed securities (MBS). In 2015, mortgage rates hit their peak in July, when demand from buyers was highest. The rate fell to 3.76% in late October and rose to 4.01% in the last week of December, following an increase in the Federal Reserve’s policy rate. In 2016, to date, the weekly average rate reported by Freddie Mac has not touched 4% again.
Looking ahead, the Fed has indicated a willingness to consider raising its rate again late this year and that would normally put a bit of air under mortgage rates. But the bond market hasn’t exactly been on fire lately. Should demand for bonds and MBS rise, mortgage rates would likely decrease, but any movement is likely to be small.
The best bet going forward? Mortgage rates will rise moderately if the European Central Bank does not increase its quantitative easing program and the Federal Reserve hikes interest rates in November or December.