November marked the end of an era for mortgage rates.
Thirty-year fixed rates topped four percent after holding well below that level for most of the year.
In one week, mortgage rates erased a steady one-year decline that started in January and ended abruptly the day after the historic U.S. presidential election.
The most important event in December will be the final Federal Reserve meeting of the year. But its results are all but certain — therefore already baked into today’s mortgage rates.
Despite recent increases, mortgage rates remain historically low. Mortgage rates averaged 8.25% over the past 45 years, according to Freddie Mac’s weekly Primary Mortgage Market Survey.
Rates are now half that.
There are still plenty of opportunities for today’s home purchase or refinance mortgage rate shopper.
A home buyer’s purchase power matches that at the beginning of 2016. Refinancing homeowners are still finding deals in today’s market.
It’s an excellent time to be shopping for a mortgage.
The average conventional 30-year fixed rate mortgage started December at 4.08%, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS).
The 15-year was clocked at 3.34%, and the 5-year adjustable rate mortgage — which will become more popular as rates rise — rose to 3.15%.
The Freddie Mac rates are available to "prime" borrowers paying about 0.5 discount points at closing.
A "prime" borrower is one with excellent credit, a large downpayment, and adequate income, and one who is applying for a mortgage amount within conventional loan limits.
That’s why average rates are terrific for market trend analysis, but not very useful to consumers looking for rate. There are a number of reasons for this.
First, Freddie Mac compiles quotes from more than 100 lenders. Some quotes are lower, some higher; but each response is blended with all the others.
As a consumer, you make a final choice on only one rate. But that is actually advantageous. You can "poll" multiple lenders — by requesting written quotes from three or four — and choose the best offer. You’re not stuck with an average.
Second, you may not want to pay discount points. Instead, you could choose to pay more for a lower rate, pay no points at all, or even request a no-closing-cost mortgage.
Third, you might not fit the profile of the "prime" borrower. You have little to no downpayment saved, or have a recovering credit score. But less-than-prime qualification factors may work to your advantage, too.
Namely, you may be eligible for a government-sponsored loan program.
Freddie Mac’s interest rate survey applies to conforming loans and conventional mortgage rates only. Government-backed FHA and VA mortgage rates are not surveyed as part of the report; nor are mortgage rates for USDA loans.
Rates for these other loan types are even lower.
All of this makes it easier for today’s refinancing homeowners to qualify for streamlined loans such as the FHA Streamline Refinance, the VA Streamline Refinance, and the USDA Streamline Refinance.
Streamlined refinance loans can close in as few as 30 days because of reduced paperwork requirements and no appraisal in most cases. These refinances are simpler for banks to underwrite and approve.
Today’s mortgage rates are hovering around 4%, and many mortgage rates predictions have them unchanged-to-higher through 2017.
Loans now cost just $480 monthly for every $100,000 borrowed, excluding escrows for taxes and insurance; and, private mortgage insurance (PMI), and flood insurance, where applicable.
It should be noted, though, that although mortgage rates are still historically low, they may not stay that way for long. Mortgage rates change quickly with the economy, and with shifts in market sentiment.
Mortgage-backed securities (MBS) — the Wall Street asset upon which mortgage rates are "made" — have been erratic of late, which has rates on shaky ground.
MBS pricing is currently responding to influences on the economy, including the Federal Reserve’s monetary policy, the jobs market, and forecasts around the incoming administration’s policies.
Thirty-year mortgage rates found a resting point at around 3.5% this summer, and, if not for the election, they may have stayed there.
Could mortgage rates be headed back down? For good reason, December could be the month in which a new steady mortgage rate decrease begins.
Rates tend to rise quickly and fall slowly. The year 2016 was the perfect example.
Rates crested 4% in late 2015, then fell steadily all year until the presidential election. Rates skyrocketed to 4% almost overnight.
But that does not mean rates will keep rising — or even stay the same — through 2017. Rates could actually fall, and here’s why.
The mortgage rate market is forward-looking. It forecasts the economic environment six-to-twelve months in advance.
It’s exactly like the stock market. When a stock might be worth more in the future, prices rise to its future predicted value right away. Conversely, when a company hits turmoil, its stock loses value immediately.
Mortgage rates responded to the proposed Trump policy just hours after final election results were in.
MBS investors tried to "get ahead" of market shifts coming in mid- to late-2017 when the new president’s policies started to affect the economy.
The logic went like this: The candidate campaigned on bigger defense and infrastructure spending, which would lead to a flood of mortgage bonds in the market, increasing supply and diminishing demand.
Because MBS are a type of bond, demand would wane for them, too, driving up associated interest rates.
Investors predicted inflation, and inflation is very bad for mortgage rates.
After inauguration day on January 20, 2017, investors may realize their fears were somewhat overblown. Perhaps policy would take longer to work its way through the economy, or proposed initiatives would die in Congress.
Predictions are almost always wrong in some way.
As the "real" reality of the new administration takes shape, we could see rates fall in 2017. Dire mortgage rate predictions may be totally wrong, giving refinancing homeowners and new home buyers a second chance at rates in the mid-3s.
The Federal Reserve meets December 13-14 to determine the nation’s monetary policy. The 12-member panel will decide whether to raise the Fed Funds Rate, or hold.
In November, the Fed voted to keep its benchmark rate near 0.25%. But two-in-ten voting members wanted a hike.
Analysts are all but guaranteeing a rate hike in December, to a range near 0.50%.
But, the hike shouldn’t affect mortgage rates.
The market has already figured a hike into today’s rate levels.
Plus, the Fed doesn’t control mortgage rates. Fed policy is merely a response to current market conditions.
If the economy is doing well, and inflation is on the rise, the Fed tends to raise rates.
More than 14 million jobs have been added in the economy since 2010 and the unemployment rate has dropped near 5.0 percent.
Wages are creeping up, causing wage-push inflation in the economy.
Companies increase wages to attract and retain workers. They need to: the economy is reaching full employment and workers are harder to find each month.
To pay more, though, firms charge more for goods and services. Prices rise, and the dollar buys less — the very definition of inflation.
Mortgage rates rise during inflationary periods. That’s why the upcoming Non-Farm Payrolls report has relevance to today’s mortgage rate shopper — the report may give convincing reason for mortgage rates to jump in the coming weeks.
The Fed, too, will be looking at the latest data when it makes its decision — the monthly Jobs Report is released twelve days before the Fed meeting adjourns.
Now could be the right time to lock: before markets have more time to build in upcoming data from the Jobs Report and Fed Meeting.
Mortgage programs today come with low rates in the 4s.
But some mortgage programs come with even lower rates than that.
Ellie Mae, a mortgage software firm which processes 3.7 million applications per year, gathers data on loans run through its system monthly. Its October Origination Insight Report was telling.
Government-backed programs, often perceived to have worse terms, actually carried the best mortgage rates.
The following average rates were reported by Ellie Mae.
Conventional loans are the go-to program for most home buyers with large downpayments, good credit, and significant assets left after closing.
But Fannie Mae and Freddie Mac — the two major mortgage rule-making agencies in the U.S. — have rolled out new programs for a wider array of buyers. A newer option donned HomeReady™ requires just 3% down and is available to those with modest incomes.
The government-backed VA home loan is even easier to qualify for. It comes with lenient credit requirements and is available to home buyers who have served in the U.S. military. There is no downpayment necessary, and no monthly mortgage insurance charged.
FHA loans are extremely popular, used by about 40% of first-time home buyers in their 20s and 30s. Flexible lending requirements allow new graduates to obtain an approval just after starting their careers.
A loan program not covered by Ellie Mae’s report is the USDA home loan, otherwise known as the Rural Development (RD) Guaranteed Housing Loan or "Section 502" loan.
It supports homeownership in less dense areas in which incomes often lag those within cities. There’s no downpayment required, and minimum credit scores are low.
USDA mortgage rates are about as low as VA ones, making them one of the most affordable home buying options on the market.
For rural and suburban home buyers, there are few better options than the USDA loan.
Mortgage rates for these programs are still low, and could go lower in 2017.
The next two weeks hold no shortage of rate-affecting news. Most notably, watch for the Non-Farm Payrolls release (a.k.a Jobs Report) on December 2. Next on the calendar is the Fed’s post-meeting announcement on December 14.
The most important market-moving events for the month are as follows:
One more note: December could be an extremely volatile month for mortgage rates. MBS trading will be lighter, with fewer investors and staff buying and selling securities of all types due to the holidays.
With fewer players in the market, rates tend to swing more wildly, even on news that doesn’t traditionally move markets.
Lock in now to avoid potentially negative mortgage rate fluctuations this month.
Mortgage rates are currently near 4 percent. Home buyers have excellent purchasing power at today’s rates; and refinancing households can save more cash with a refinance.
Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.