Your Mortgage: Rate update

Mike Miles

By Mike Miles

The Federal Open Market Committee (FOMC) recently met and decided to maintain the current federal funds rate (also known as the overnight rate) in the target range of 1.75 to 2 percent. This was expected.

The FOMC has three more meetings scheduled for the rest of the year. Two more rate increases are expected to be implemented in 2018. So far, every rate increase has been about .25 percent. It’s important to note that any federal fund rate increase is not a one-to-one equal to traditional mortgage rates increasing.

The federal funds rate gradual increase will result in higher mortgage rates but there is more involved. Putting it simply, if this rate continues to rise, it means the overall economy is performing well and a well-performing economy generally leads to higher prices and rates.

Here are a few other markets to keep an eye on if you are a rate watcher:

  • Stock indexes – if these equity markets perform well, rates generally increase
  • Gold prices – if these prices fall that is generally bad for rates as gold is considered a safe haven
  • Oil prices – energy prices play a large role in creating inflation
  • 10-year Treasury yield – as this yield increases so will mortgage rates. Generally speaking, rates will increase .125 percent for every 10 to 13 basis point increase on the yield

The 10-year Treasury yield is my favorite because I think it wraps the other market summaries up into one package. If equities are strong, that probably means the market (investors) are leaving safer investments (like bonds and gold) for stocks. It’s easier to predict what rates will do each day by looking at the yield. It is currently trading at about 2.94 percent and it was trading at 2.24 percent one year ago. That’s a 70-basis point increase. The average 30-year fixed mortgage rate was 3.875 percent while current rates are in the mid-to-upper 4’s.

Overall, things are very balanced and steady. We might see little blips here and there, which can cause a short-term drop or spike but those can’t be predicted. My recommendation is to lock a rate if you are currently under contract to buy a home. It’s safe to float (not lock) if you are in the process of searching for a home to buy.

We have many people that will call or email us to provide payment scenarios based on a range of rates to help them make home-buying decisions. We encourage it, and are happy to provide that info as a resource.