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Mortgage Rate ReportSaturday, August 18, 2018
Mortgage rates dipped lower for the second consecutive week after the Federal Reserve decided to keep interest rates unchanged at its August meeting. Although the Fed's statement reflected its more aggressive rate strategy, its move to stay put was widely expected after its June hike. The Fed's concise statement highlighted a strengthening economy including a strong labor market, household spending and business investment. Although some could interpret the use of more hawkish language as paving the way for future interest rate hikes, the mortgage market responded positively to the Fed's decision to hold the target Federal Funds rate at 1.750% to 2.000%.
Bullish telegraphing from the Fed as well as a string of favorable economic news had pushed mortgage rates higher for much of the summer but rates have pulled back the past two weeks, which is positive news for borrowers. Rates dipped last week on the news that the Fed left interest rates unchanged and slid again this week as turmoil in the global currency market led investors to buy U.S. treasuries, pushing yields lower. Lower treasury yields usually translates into lower mortgage rates, which is what happened this week.
The drop in rates may only be temporary in light of recent reports that show a tightening job market, although moderate wage growth could help keep inflation low and benefit mortgage rates. Although the real estate market is facing challenges due to a lack of affordable inventory and other factors, the overall strength of the economy is offering little reason for the Fed to change course which could lead to higher mortgage rates in the future despite the decline we saw this week.
The mortgage rate for a 30 year fixed rate loan slid 0.125% to 4.250% while the rate for a 15 year fixed rate mortgage dropped to 3.625%. The interest rate on a 5/1 adjustable rate mortgage (ARM) also declined 0.125% to 3.750%. FHA mortgage rates and VA mortgage rates both held steady at 3.875%, with both programs appealing to borrowers focused on low or no down payment programs, especially first-time home buyers. Jumbo mortgage rates dropped to 4.375% while non-owner occupied mortgage rates remained at 4.625%.
Although the Fed's decision to keep rates unchanged was anticipated, the mortgage market's reaction to the news was pleasantly surprising. After rising moderately over June and July, the drop in mortgage rates is welcome news for borrowers. While interest rates are impossible to predict, prospective borrowers looking to buy a home or refinance may be able to lock in a lower rate by acting sooner rather than later. As lenders react differently to dynamic market conditions, we have also seen greater fluctuations in mortgage rate pricing, which means borrowers benefit more by comparing several lenders.
Because rates change constantly, we continue to actively monitor the mortgage market for new developments. Borrowers should check the FREEandCLEAR rate tables regularly to review personalized, updated mortgage rates for lenders in their area. Our rate tables are free to use and require no personal information.
Why Select an Adjustable Rate Mortgage
Lower Initial Rate.
Adjustable rate mortgage rates are typically lower than the interest rate on a 30 year fixed rate mortgage, at least initially. Borrowers benefit from the lower ARM mortgage rate, sometimes called a “teaser” rate, for the first 3, 5, 7 or 10 years of the loan, depending on what type of ARM you select. After this initial period, which is also called the fixed rate period, the interest rate is subject to change and possibly increase. Borrowers who know they are only going to own their home for a set period of time are able to take advantage of the lower ARM rates, without being exposed to the risk that their interest rate increases in the future.
Lower Monthly Payment.
Lower adjustable rate mortgage rates mean a lower monthly payment for borrowers. A lower monthly mortgage payment provides additional financial flexibility for borrowers and makes owning a home more affordable, at least during the initial fixed rate period of the loan. The flip side of an adjustable rate mortgage is that your monthly payment can potentially increase in the future if interest rates go up. Borrowers need to make sure that they can afford their monthly payment both at the beginning of the mortgage, when the interest rate is lower, and over time if their payment goes up.
Larger Mortgage Amount.
The initial teaser ARM mortgage rate and monthly payment enable borrowers to afford a larger mortgage amount and potentially buy more home. Being able to qualify for a larger mortgage amount is one of the main attractions of an adjustable rate mortgage. The downside of being able to afford a larger loan amount with an adjustable rate mortgage is that you lose the certainty that comes with a fixed rate mortgage, where the interest rate remains the same over the life of the mortgage.
You Think Interest Rates Will Go Down.
The interest rate for an adjustable rate mortgage is subject to change after a fixed period of time, usually the first 3, 5, 7 or 10 years of the mortgage. The period of the loan when the interest rate can change is called the adjustable rate period and lasts until the end of the loan term, which is usually 30 years. If you think interest rates will decline in the future then an adjustable rate mortgage may be a good option. Because if interest rates go down during the adjustable rate period of your loan, your monthly payment will decrease which is great for borrowers. Please note that predicting interest rates is highly challenging so this approach can expose you to significant risk.
Why Borrowers Compare Adjustable Rate Mortgage Rates on FREEandCLEAR
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More FREEandCLEAR Mortgage Resources
Use our Adjustable Rate Mortgage Calculator to calculate the initial monthly payment and worst case scenario for an ARM based on today’s interest rates
Understand the ins and outs of an adjustable rate mortgage (ARM) including key loan terminology and how they work
Adjustable rate mortgages involve more risk than other types of mortgages. Be sure to understand the downsides of an ARM so you can make an informed decision when you select your mortgage
Got a question about an adjustable rate mortgage (or any mortgage topic)? Ask the FREEandCLEAR Mortgage Expert and receive an informative response within 24 hours