As was the case at the beginning of last week, Mortgage Rates moved slightly lower today, once again hitting new all-time lows. In a bit of a departure from the norm, it was domestic economic data (as opposed to European headlines) that did more to move bond markets into stronger territory today. MBS (the Mortgage-Backed Securities) that most directly influence mortgage rates, are part of the bond market, and when bonds are "stronger," it connotes rising prices and falling yields (meaning lower rates).
That said, the day to day movement in the mortgage market is seldom large enough to noticeably shift the balance from one prevalent interest rate to the next. Considering that mortgage rates are generally separated by 0.125%, it would take a fairly violent day of movement to get to the next higher or lower interest rate. Because of this, we follow the day-to-day movement in borrowing costs charged by lenders for a given rate. It's those borrowing costs that actually moved lower today while the prevailing Best-Execution rate for Conventional 30yr Fixed Loans remains at 3.5%-3.625%
(Read More:What is A Best-Execution Mortgage Rate?)
Long Term Guidance: We'd continue to advocate against trying to "get ahead" of current market movements due to the high degree of uncertainty. While it's a reasonably safe assumption that European concerns will generally help rates stay lower than they otherwise would be, that "otherwise would be" part is very much a moving target. Best bet is to focus on the fact that rates are at their all time lows, and can change quickly based on events that aren't "scheduled" or able to be forecast. Risk vs reward for floating vs locking looks a bit larger than we'd like, but not out of the question for those who understand the risks and have an exit strategy if things don't go their way.
We spoke to one originator who offered a slightly more direct approach to this guidance: "What do lemmings, the Price is Right Yodeller and rate floaters all have in common? Everything looks great till the bottom falls out underneath you. Regardless of the continued decline in rates, the bottom will drop out. How close to the edge of that cliff do you want to get?"
Loan Originator Perspectives
Jeff Statz, Network Funding L.P.
I'm running out of unique comments to make as MBS are consistently improving. The main thing I'd be wary of is a change in guidelines for any intricacies of your loan. You might think you're the perfect borrower, but underwriters can always come up with "something." Surprise guideline additions happen frequently but, for the most part, locked loans are safe.
Ted Rood, Senior Mortgage Consultant, Wintrust Mortgage
Risk versus reward is investing's oldest adage. Mortgages are no different. While rates have continued to trend downward, the reward of floating (slightly lower rates or higher lender closing cost contributions) must be balanced against the risk (possibility of rates rising rapidly). Odds probably favor floating for anyone willing to assume some risk, but if you do so, better be ready to not look back if you lose some pricing on your loan.
Mike Owens, Partner with HorizonFinancial Inc.
I still say lock because anything can happen that could drive rates higher overnight. I also have re-negotiation options so even if locked, we can go down in rate.
Victor Burek, Benchmark Mortgage
The problems in Europe continue and rates continue to set new lows. My advice is the same advice i have been giving for the last couple months, float til you are within 15 days of funding.
Today's BEST-EXECUTION Rates
- 30YR FIXED - 3.5% - 3.625%
- FHA/VA -3.5% - 3.75%
- 15 YEAR FIXED - 2.875% - 3.00%
- 5 YEAR ARMS - 2.625-3. 25% depending on the lender
Ongoing Lock/Float Considerations
- Rates and costs continue to operate near all time best levels
- Current levels have experienced increasing resistance in improving much from here
- Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating
- But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn't always mean they're done improving.
- (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).