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Have you seen HSH's latest Two-Month Forecast for mortgage rates?

Have you seen HSH's latest Two-Month Forecast for mortgage rates?

Today's Mortgage Rates

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Mortgage rates eased slightly again this week, but potential borrowers shouldn't expect further declines.

Freddie Mac reported today that the average offered interest rate for a conforming 30-year fixed-rate mortgage decreased by another two basis points (0.02%), easing to 2.94%, a third week of very little movement. Average rates for conforming 15-year FRMs slid by twice as much as its longer-term counterpart, tallying a four basis point (0.04%) fall to 2.26%. Meanwhile, the initial fixed interest rate for a conforming hybrid 5/1 ARM continued a more erratic pattern, this week declining by 11 one-hundredths of a percentage point (0.11%) to 2.59%, very close to a record low (data begins in 2005).

Although they shouldn't have, financial markets reacted with surprise this week when emerging data covering inflation was released showing a fresh surge in price pressures. The Consumer Price Index continued a steady upward march, rising 0.8% in April overall, with "core" prices up 0.9%, kicking core prices from a 1.6% annual rate in March to a 3.0% level in April. Producer prices also flared higher than was expected, rising 0.6 for the headline figure and a full 1% at the core, and both measures are increasing rapidly.

Although the Fed has been cautioning that it expected to see worsening inflation figures this spring, partly due to last year's pandemic-induced declines dropping out of the calculation, and partly due to demand outstripping supply issues as supply lines remain challenged, the increases in costs are rather larger than expected and show no signs of abating. Investors are rightly concerned that cost increases may become less controlled or controllable by the Fed, and this could mean more active and aggressive Fed policy sooner than is currently expected.

If nothing else, rising growth and prices increase the possibility that the Fed will signal a shift in its QE-style bond-buying program at the next meeting in mid-June, and that members may move up their expectations for prices and move forward the timing of the Fed's first increase in interest rates. That said, there is a lot of time and data yet to be seen before then which can temper the outlook.

Underlying yields that influence mortgage rates are again on the rise, and so borrowers should expect somewhat higher interest rates in the coming days.

Each week in HSH's MarketTrends newsletter, we track and discuss economic conditions that affect mortgage rates and their impact on housing markets and consumers. Read the most recent edition of MarketTrends or subscribe for email delivery.

Week 30-year-Fixed 15-year-Fixed 5-year-ARM
05/06 2.960% 2.300% 2.700%
04/29 2.980% 2.310% 2.640%
04/22 2.970% 2.290% 2.830%
04/15 3.040% 2.350% 2.800%
04/08 3.130% 2.420% 2.920%
04/01 3.180% 2.450% 2.840%
03/25 3.170% 2.450% 2.840%
03/18 3.090% 2.400% 2.790%
03/11 3.050% 2.380% 2.770%
03/04 3.020% 2.340% 2.730%
02/25 2.970% 2.340% 2.990%
02/18 2.810% 2.210% 2.770%

Mortgage Choices at a Glance

Loan type/terms Fixed 30 years Fixed 15 years/
20 Years
Hybrid ARM Traditional ARM Balloon Mortgage
Rate changes
  • Never; Fully fixed for entire term
  • Never; Fully fixed for entire term
  • Usually after fixed period of 3, 5, 7 or 10 years
  • After that, annual change typical
  • Fully variable
  • Typically changing at one-year intervals
  • Some have shorter change intervals
  • Never; Fully fixed for entire term
Benefits
  • Low, stable payment
  • Usually easiest qualification
  • Stable payments
  • Builds equity faster
  • Lower total interest costs than 30-year term
  • Lower rates than fully fixed-rate mortgage
  • Can sometimes borrow larger loan amount for same income
  • Can have lowest interest rates
  • Qualification may not depend upon today's interest rate
  • Often has lower interest rate/monthly payment over balloon period than fixed rate
  • Similar to hybrid ARM
Drawbacks/Risks
  • Can have highest total interest cost over time
  • User may "buy" more rate stability than actually needed, increasing cost
  • Requires higher income to qualify
  • Less affordable monthly payment
  • Funds commited to payment cannot be used elsewhere
  • Stable payment for a number of years, then unpredictable
  • Rates can jump by as much as 6 percentage points at first adjustment
  • Payments fluctuate at each rate change
  • Unpredictable, rates can change as much as 2 percentage points at each adjustment
  • Loan fully due and payable when balloon period ends
  • Must be paid off or refinanced in unknown market conditions
Alternative strategy
  • Consider Hybrid ARM with appropriate fixed period
  • Consider 30-year term and prepaying loan to preserve cash-flow flexibility
  • Consider Fixed rate mortgage or longest possible fixed period, if loan hold period not known
  • Consider Hybrid ARM to ameliorate rate and payment risks for a given period
  • Consider Hybrid ARM to ensure continued loan availability
These may be useful for...
  • Purchasing a home
  • First-time homebuyers
  • Refinancing to improve cash flow/lower payment
  • Refinancing to lower total interest cost
  • Retiring mortgage more quickly
  • Building or rebuilding equity more quickly
  • Purchasing or refinancing when time horizon is seven years or shorter, and where borrower can handle increase in monthly payments
  • Purchasing or refinancing when interest rates are near top of cycle, and are likely to fall, or sale or refinance is anticipated within three years
  • Purchasing or refinancing when time horizon is three years or longer and home will be sold prior to end of balloon period
Consider if
  • Buying or refinancing a home and planning on owning for longer than 10 years
  • Buying second home
  • Refinancing to build equity
  • Paying off mortgage before life event (retirement, etc)
  • Buying a home and expect to move before fixed period ends, or know income will rise to offset payment risk, even in worst-case scenario
  • Buying or refinancing when income can handle frequent payment changes and worst-case scenario for rates over a four-year period
  • Buying a home and expect to move before balloon period ends, or have resources to pay off mortgage if refinance not available
When shopping, ask about
  • "Full cost" vs. "No cost" refinances, prepaying loan to shorten term if desired
  • If 20-year term makes payment too high, whether 25-year term is available
  • Interest rate caps, for first and subsequent adjustments, worst-case scenario
  • A history of the Index the loan is keyed off, margin and caps
  • Whether or not there is any built-in refinancing option when the balloon period ends
Useful tools & resources

Latest Mortgage Rate Analysis

HSH's longer-range outlook for mortgage rates, where we review our last forecast,discuss current market influences and provide our expectations for mortgage rates over the next nine weeks.

Mortgage Calculators

Mortgage rates and more

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