‘Lock it in!’: Mortgage rates climb to 6.5% amid global volatility

Mortgage rates have returned to the 6.5% level as financial markets shift their focus from economic data to escalating geopolitical events. 

“If you’ve got a deal, lock it in; there’s room for mortgage rates to continue to climb higher,” Nash Paradise, director of sales at UMortgage, advised loan officers. “Brokers have flexibility that a traditional loan officer doesn’t have, which is nice, but it’s not worth the float – it’s too risky; rates being in the mid 6s still feels like a gift compared to where we were in the last couple years. But we could very easily see one or two headlines and the next thing, they are at 7%.”

In this environment, Paradise has personally shifted to more 45- and 60-day locks. The volatility is severe enough that a week’s delay could make a deal unaffordable for a borrower, he said.

Mortgage News Daily reported Monday that 30-year fixed rates averaged 6.56%, up from 6.32% last week. Meanwhile, HousingWire‘s Mortgage Rates Center showed 30-year conforming loan rates averaged 6.44%, up 5 basis points from last week’s 6.39%. Rates for 30-year Federal Housing Administration (FHA) loans increased 3 bps to 6.16% and jumbo loan rates rose 3 bps to 6.29%.

“That’s just the median on where things are being locked,” Andrew Cady, a UMortgage branch manager, said in a podcast Monday. “Most people’s interest rates are going to be above that number. This is the crème de la crème buyer, this is primary residence, top credit score, great down payment.”

Fed holds benchmark rates

Another source of pressure has been the Federal Reserve, which on Wednesday decided to hold benchmark rates steady. In his last press conference that day, Powell confirmed that he will remain on the board as a governor after his term as chair ends May 15, keeping a low profile “for a period of time to be determined.”

Cady noted this “spooked” the market slightly, with investors now viewing Powell as a “thorn in the side, rather than the guy that’s about to exit.”

Todd Bitter, national sales director at NEXA, said that news that Powell was leaving the Fed chair position gave some “optimism to the market,” pushing rates down. Trump’s choice to succeed Powell, Kevin Warsh, is advancing in Congress.

“It was a little bit of a disappointment to the market that Powell wasn’t leaving, and Trump wasn’t going to get another appointee,” Bitter said.

Powell’s final meeting as Fed chair revealed a divided board. Eight officials voted for the monetary policy action, one advocated for lowering rates and three backed the decision but objected to recent language regarding an “easing bias” that suggested the central bank was moving closer to a rate cut.  

Secondary market

Mortgage spreads – the difference between the 10-year Treasury yield and the 30-year mortgage rates – are “the sole reason why mortgage rates have been under 6.65% the entire year,” according to HousingWire’s Lead Analyst Logan Mohtashami.

“Even with the oil shock and market drama, spreads haven’t gotten close to the levels seen in 2023 or 2024. The recent high was 2.11%, a big improvement over prior years,” he said.

One of the reasons why the spread between the 10-year treasury and mortgage-backed securities is tightening is that lenders compress margins to keep business moving. However, there isn’t much more room to narrow — if yields keep climbing, rates will have to follow.

“Six and a half is the baseline for lenders to make some decent deals,” Bitter said. “I don’t think the lenders want to have those higher rates out there, because they see the rates are going to come down; lenders are scared that they pay out good money at 7% that’s going to get refinanced within a year, and it’s going to kill their MSRs.”

For Michael Bright, CEO at Structured Finance Association, mortgage rates and spreads have remained relatively range bound and tighter in recent weeks.

“But uncertainty over future Fed moves and macroeconomic indicators have some investors analyzing these tighter levels,” Bright said. “Agency mortgage-backed securities buying is supportive of the MBS basis, all else equal.”