December 15th Best Mortgage Interest Rates and Lock Recommendation

By: Liz Freeman
December 16th, 2009  

Here is today’s look at best mortgage rates, (which do not include discount points, origination points, or loan level risk based price adjustments) provided by Mortgage News Daily, Freddie Mac, and other sources. Note that Freddie Mac’s AVERAGE rates are typically higher than BEST rates, because average rates include surcharges for risks associated with property types, down payments, and credit scores. To be eligible for BEST rates, borrowers need spotless credit (740 score or better), a sizable down payment (20-25%) or equity amount, and stable, adequate, and documentable income. In addition, the property must be located in a healthy (not declining) market and must be conventionally built.

*** LOCK ALERT *** RATES INCREASING ON INFLATION DATA  ***

Tuesday’s bond market has opened well in negative territory following some surprising inflation news. The stock markets are relatively calm with the Dow down 10 points and the Nasdaq nearly unchanged. The bond market is down 13/32, which should push this morning’s mortgage rates higher by approximately .250 - .375 of a discount point.

The Labor Department gave us the news that fueled this morning’s bond selling. They said that the Producer Price Index (PPI) spiked 1.8% last month and that the core data reading rose 0.5%. Both of these readings were more than twice forecasts, meaning inflationary pressures were strong at the producer level of the economy last month. This is bad news for bonds and mortgage rates because inflation erodes the value of a bond’s future fixed interest payments, making them less attractive to investors. The result usually is bond selling and higher mortgage rates.

November’s Industrial Production data also gave us stronger than expected results with a 0.8% increase. Forecasts were calling for a 0.5% increase, indicating that manufacturing activity at U.S. factories, mines and utilities was stronger than thought. This is also bad news for bonds because it points towards a strengthening economy.

If closing in the next 15 days, I would LOCK ; otherwise, I would FLOAT my rate. This is only an opinion–what I would do if I were closing a mortgage at this time. Your decision may depend on other factors such as the strength of your loan approval and your tolerance for risk, and must be made with those in mind.

Liz Freeman has more than a decade of mortgage lending experience. She writes about mortgage and finance issues and is a regular contributor to Mortgage News Daily.