A week of rising mortgage rates
Several benchmark mortgage rates floated higher this week. The average rates on 30-year fixed and 15-year fixed mortgages both trended upward. On the variable-mortgage side, the average rate on 5/1 adjustable-rate mortgages also cruised higher.
Rates for mortgages change daily, but they have remained in a historically low range for quite some time. If you’re in the market for a mortgage, it could make sense to lock if you see a rate you like. Just make sure you shop around first.
The average rate you’ll pay for a 30-year fixed mortgage is 3.88 percent, an increase of 11 basis points over the last seven days. A month ago, the average rate on a 30-year fixed mortgage was lower, at 3.83 percent.
At the current average rate, you’ll pay principal and interest of $470.52 for every $100,000 you borrow. That’s an increase of $6.27 over what you would have paid last week.
The average 15-year fixed-mortgage rate is 3.11 percent, up 1 basis point over the last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $696 per $100,000 borrowed. That’s clearly much higher than the monthly payment would be on a 30-year mortgage at that rate, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more rapidly.
The average rate on a 5/1 ARM is 3.88 percent, ticking up 5 basis points over the last week.
These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.
Monthly payments on a 5/1 ARM at 3.88 percent would cost about $471 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
Only 14 percent of the experts believe rates will continue to rise. Logan Mohtashami, a senior loan officer with the AMC Lending Group, said, “Rates will rise. On July 25th, I tweeted out that if stocks sold off, the 10-year yield can hit 1.60 percent and we are there today. This is my low-end forecast for 2019 and the bottom range for returns in all my projections starting in 2015. Now what? I have a working thesis on how the 10-year yield can go below 1 percent this year which means a two handle on mortgage rates. For right now, keep an eye out on 1.56 percent on the 10-year yield, we are seeing panic buying today, and the lows so far have been 1.56 percent, so we are very overbought on bonds. However, if 1.56 percent breaks, next stop 1.40 percent.”
Half of the experts say rates will go back down. Michael Becker, a branch manager with Sierra Pacific Mortgage, said, “The yield on the 10-year Treasury has dropped 45 basis points or .45 percent since last Wednesday. It’s hard to pinpoint the exact reasons for the big move downward in yields.
“The escalation in the trade war with China, slower global economic growth (especially in Europe), moves by the Fed and other central banks, and concern about liquidity are all possible culprits for the big move. However, the big move down in Treasury yields has not yet translated into similarly lower mortgage rates. Mortgage-backed securities have not rallied as much as Treasuries. This often happens when Treasury yields drop quickly. However, mortgage rates are the best they’ve been since November of 2016. If this move in Treasury yields holds, I would expect mortgage rates to start to catch up with the move in Treasury yields and we will see lower rates in the coming week.”
Michael Cox, the founding director and executive-in-residence of the O’Neil Center for Global Markets & Freedom at the SMU Cox School of Business and former chief economist of the Dallas Federal Reserve Bank, adds, “The trend in the 30-year Treasury bond rate has been generally down for the whole of 2019. But two factors have precipitated a recent steep decline in rates: the cut in the Fed funds rate and growing trade tensions between the U.S. and China. “Growing trade friction has introduced more uncertainty into long-term economic growth, which has caused investors to shift a bit from stocks to bonds, increasing bond demand, raising bond prices and thus lowering rates. I expect this trend to continue a bit longer.
“Given the volatility of decision-making coming out of government today, it’s hard to tell what’s next for policy and for rates. But for now, given that long term mortgage rates key mainly off of long-term government bonds rates that have been falling, I see the mortgage rate trending downward.”
Shashank Shekhar, CEO of Arcus Lending, said, “Mortgage rates will go down. Global bond yields are tumbling with German bonds dropping to their lowest ever. Additionally, central banks of New Zealand, India, and Thailand cut their rates to try and offset the weakness in global trading and manufacturing. And as China-US trade relations worsen even more, stocks are significantly lower. All these factors boost mortgage bonds which lowers mortgage rates for the borrowers.”
Dick Lepre, a senior loan officer at RPM Mortgage, believes, “The 10-year Treasury yield should increase, but mortgage prices should be flat. Why? Mortgages diverted from Treasuries on Aug. 5 because, with the Treasury yield falling quickly, potential buyers of mortgage-backed securities were squeamish about early payoffs and chose to watch from the sideline rather than buy. Mortgage backed securities are priced assuming a certain average duration. When that duration falls so does the value of the securities. Early payoffs devalue these securities. Treasury debt, on the other hand, does not allow early payoff.”