Time to Fix Your Mortgage Rate?

Posted by Charles D

August 8, 2009

Artificially low mortgage rates in the U.S. will not last, nor are they sustainable for the economy. With the economy deciding whether the future will be inflationary or deflationary mortgage rates will be a key indicator in which direction economic progress will go towards. In a series FinanciallyFit, identifies some timely issues in the debate.

Mortgage rates can fluctuate over a few days or several weeks. The leading indicators that influence rates vary depending on the type of mortgage for which you’re approved and whether it’s a fixed rate or an adjustable rate (or ARM).

Before the downturn, some mortgage rates could be tracked and predicted relatively easily because a few leading indicators were more closely bound to rates, says Keith Gumbinger, a vice president at HSH Associates, a mortgage-data tracking firm. For example, fixed-rate mortgages moved in closer lockstep with 10-year Treasury yields than they do now. Now, those rates are heavily influenced by other factors, including the unemployment rate, consumer spending and fear of inflation, he says.

According to the most recent data from HSH Associates, average mortgage rates are down from one month ago. The average rate for a 30-year conforming mortgage was 5.42% for the week ending July 31, compared to 5.55% for the week ending June 26. The average rate on a 15-year mortgage for the last week of July was 4.85%, down from 5.01% in the last week of June. And the average rate on a 5/1 ARM (the most common ARM, whose interest is fixed for the first five years and then becomes variable) was 4.89%, down from 5.14% in the week of June.

When is the right time to lock in a mortgage rate?

In most cases, buyers must first find the home that they want to buy and sign a purchase agreement on it. That often requires a deposit of around 5% of the home’s purchase price, says Gibran Nicholas, the chairman of the Ann Arbor, Mich.-based CMPS Institute, which trains and certifies mortgage lenders and brokers.

Then, once your lender has told you the mortgage for which you have qualified, ask if you can lock in the rate through the closing process, which usually lasts around 30 to 45 days.