If you’re in the market for a new mortgage or a refinanced loan, you likely spend time watching rates to decide when to lock in. Unfortunately, the landscape of mortgage rate trends is not always easy to follow, since different news headlines quote different averages.
Today is a good example. In the daily review of mortgage rates we published this morning, we reported that averages had dropped. “Rates falter” was the news in our headline. And it’s true: The flagship 30-year fixed-rate mortgage average dropped almost a tenth of a percentage point in the latest daily reading (representing Wednesday’s lender rates).
But if you saw mortgage news reported across many other outlets a bit later than our story, you would have seen numerous headlines spouting that mortgage rates climbed. So what gives?
The answer has to do with Freddie Mac, and we’ll explain why its average is so widely reported, and why it can sometimes tell a seemingly opposite story than our Investopedia averages.
- When the news media report on mortgage rate trends, a number of different rate averages are quoted.
- This can lead to headlines that seem to conflict, or at least cause confusion for mortgage rate watchers.
- Freddie Mac is the most widely quoted average for 30-year fixed-rate loans, as its historical database is unparalleled, stretching back to 1971.
- But Freddie Mac only calculates and publishes its rate average once a week, on Thursdays.
- Investopedia's mortgage rate averages are calculated daily and provide a more timely and realistic benchmark for the typical mortgage rate shopper.
How Freddie Mac Calculates its Mortgage Rate Averages
Freddie Mac, or the Federal Home Loan Mortgage Corporation, is the granddaddy of mortgage rate tracking. Chartered by Congress in 1970, Freddie Mac has an unrivaled historical database of mortgage rate averages that stretches back to 1971. No other entity that publishes rates and averages comes close to Freddie Mac’s more than 50-year history.
But while Freddie Mac has the historical market cornered, relying on it as a current barometer leaves something to be desired for the careful mortgage rate watcher. That’s because Freddie Mac averages are compiled just once weekly, and like today, are published mid-day on Thursdays. (When Thursday is a federal holiday, the released is pushed up to Wednesday.)
Though its methodology has changed over the years, Freddie Mac’s current calculation involves surveying lenders from Thursday through the following Wednesday, meaning the rates included in the average span five full business days of mortgage application activity.
This means not only that you’re getting an average for today vs. one week ago, but also that the average comprises what happened with rates last Thursday, plus what happened Friday, and so on for a total of five days. On each of those days, the rate trend can move differently than the day before. So the average is really a composite of five days’ activity.
In addition, Freddie Mac surveys lenders on their rates without segmentation on credit score of the applicant, or whether any discount points are to be paid (mortgage points allow borrowers to pay more upfront to lock in a lower loan rate).
How Investopedia’s Averages Provide a More Telling Snapshot
If you’ve been following Investopedia’s mortgage rates coverage, you know that our averages are published daily. This means, for example, that a week with three days of increases followed by two days of decreases will have that whole story relayed, day by day, rather than just a week-over-week view.
When you’re looking to lock in a rate on a new or refinanced loan, days matter. So when you can see how rates are moving now, not three or four days ago, that can be a big help. It also means you can see the next installment in the trend each weekday morning, rather than wait for the next Thursday to roll around.
As for the criteria behind Investopedia’s averages, they are based on rates provided during the previous day by 200 of the nation’s top lenders. Additionally, the loans included cannot involve any discount points that would buy down the rate, and included applicants have a good credit rating of 700-760. As mentioned above, Freddie Mac’s average does not limit the loans in its average by either of these criteria.
As a result, Investopedia’s daily averages can be considered more realistic benchmarks for the typical borrower, though the reported 30-year average will generally always be higher than Freddie Mac’s average due to their contrasting methodology.
So What Really Happened With Mortgage Rates Today and This Week?
Until today’s drop, Investopedia's 30-year rate average had climbed for eight consecutive market days. So though the flagship average dropped back nine basis points today, it is up 35 basis points from a week ago, from 7.01% to 7.36%.
Also notable is that yesterday’s reading showed the Investopedia average notching a six-month high of 7.45%, after jumping a bold 21 basis points Tuesday. That took the average within just an eighth of a percentage point of the 20-year peak reached last October.
In light of this, it’s logical that today's Freddie Mac report was notably up, with its average rising 18 basis points. Had their calculation be done yesterday, the climb would most likely have been stronger, but instead it was slightly mitigated by the recent pullback.?