Mortgage rates continued lower at a fairly brisk pace today, extending the already impressive drop that followed Friday's employment data.  By Friday afternoon, the longstanding 4.625% best-execution rate was sharing equal space with 4.5%.  Today's improvement results in 4.5% standing alone as the most prevalently-quoted conforming 30yr fixed rate for ideal loan scenarios.  There continues to be a fairly large gap between rates in terms of the cost required to buy down to 4.375%.

This significant shift lower in rates is now on par with that seen in September when the Fed held off tapering.  That more than qualifies it as one of the pockets of recovery running counter to the longer-term trend toward higher rates.  In other words, if we think of the overall path as 2 steps higher, 1 step lower, this would be the latter.

The question then becomes: how do we best take advantage of this reprieve?  There are essentially two ways.  First, you can just lock right now.  This is obviously the more conservative approach, but with further movement higher being the default and scattered positivity being the exception since May 2013, the conservative approach has been the best bet in general.

The more aggressive approach stands a better chance to capitalize on further movement but isn't without its risk.  It simbply involves setting a limit in terms of rate and costs.  If your quote goes above that limit, you lock.  The most conservative way to set the limit would be right at today's quote, meaning that unless rates improve tomorrow, you'd lock.  From there, you could increase your flexibility and risk by setting the limit slightly higher, either by .125% in rate or in terms of increased closing costs.

For instance, if you're at 4.5% today paying 0 points, you could either set your line in the sand at 4.625% with 0 points or 4.5% with 0.5 points.  By taking both rate AND cost into consideration, you'd hit your lock trigger sooner.  That could help avoid additional losses if the market is moving slowly.  A caveat for all of this though, is that markets' natural predisposition is always at risk of being thrown off if the incoming data is compelling enough.

Loan Originator Perspectives

"Rates continue to improve today following the very disappointing jobs numbers on Friday. I am recommending my clients to float for now and see if the rally continues with the only exception being those clients within 10 days of closing." -Victor Burek, Open Mortgage

"Nice gains again today as Friday's rally shows some staying power. We mentioned on Friday that floating over the weekend might be productive, and it was. If you're floating a loan, you've gained enough ground that even losing a little puts you ahead of last Thursday's rates. Wouldn't be surprised to see further improvement, but have no expectation of rates in the 3's anytime soon either." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage

"Pleasant start to rates since the NFP meltdown on Friday. Pricing continues to improve and may continue the trend leading up to next months report. This is no time to get complacent as rates could reverse course at any time. I always favor locking, but now could be a time to cautiously float as your loan application is being processed. Any hint of a reversal is your lock indicator." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434

Today's Best-Execution Rates

• 30YR FIXED - 4.5%
  
• FHA/VA - 4.25%
  
• 15 YEAR FIXED -  3.5%
  
• 5 YEAR ARMS -  3.0-3.50% depending on the lender

Ongoing Lock/Float Considerations

• The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
  
• Tapering ultimately happened on December 18th, 2013.  Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn't make for another immediate spike higher.
• That said, we should assume that we're still in a rising rate environment on average with scattered pockets of recovery providing clear opportunities to lock.  
• The exceptionally weak employment data on January 10th provided on of these "pockets of recovery."  There are two ways to approach these.  More risk tolerant: set a line in the sand just slightly higher in cost than your current quote.  In other words, this could be either the next .125% higher in rate or simply a few hundred dollars more in closing costs.  Then commit to lock when your quote crosses above that line in the sand.  Less risk tolerant: lock on the day of or day after any significant move lower in rates.
• (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from 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).