Mortgage rates maintained their paradoxical descent following this week's Fed rate hike.  The paradox can be accounted-for in several ways, but the easiest is to say that bond markets (which dictate mortgage rates) were erring on the side of caution leading up to the Fed announcement.  Even though the hike was a given, the trading environment following the hike was not.  Bonds were prepared for that environment to be more difficult than it has proven to be, and thus rates have managed to come back down to some extent.

The movement over the past 3 days is far from extreme.  Most lenders continue quoting conventional 30yr fixed rates in a range from 4.0 to 4.125% with the improvements seen in the form of slightly lower closing costs.  Next Friday is Christmas and bond markets will be closed for the weekend beginning Thursday afternoon (earlier than normal).  Most of the personnel effort at mortgage companies will be directed toward closing loans that need to close this month.  Staffing can be lighter, turn times can be longer, and rate sheets tend to be more conservative than they otherwise would be.  Risk and reward are both lower than normal when it comes to locking/floating.

Loan Originator Perspective

"Mortgage bonds continued to rally today.  We are  now at a point where further gains could be difficult to obtain.  Especially if the ten year can not cross below 2.16.  If you are looking to close within 30 days today may be a good day to lock especially if your lender repriced."-Manny Gomes, Branch Manager Norcom Mortgage

"MBS prices improved again today by about 20 bps, and we're near Monday's "pre-pre-Fed sell off" ranges.  There's minimal meaningful economic data on tap for next week, will be interesting to see if we can retain the last 2.5 days' gains.  The final two weeks of the year typically have greatly reduced trading volume, which can lead to increased volatility.  If you're floating, and aren't afraid to lose a little ground from today's pricing, may be worth floating over the weekend to see if your lender's pricing improves on Monday.  Of course, if you're happy with the current pricing, there's NEVER anything wrong with locking to guarantee your rate/lender credit.  " -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 4.0-4.125%
  • FHA/VA - 3.75%
  • 15 YEAR FIXED - 3.25-3.375%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • 2015 has been largely about global interest rates rising unevenly from a long-term low brought about by the onset of quantitative easing in Europe.  European rates are most directly affected, but rates in the US have often taken cues for similar movement. 
  • As the European rate rally fizzled out, the Fed began telegraphing its intent to hike rates.  While the Fed rate doesn't directly affect mortgages, the two are still loosely connected over time.  They become more disconnected when the economy begins to contract.  This helps longer term rates like mortgages move lower even while the Fed rate his steady or rising.

  • The Fed finally hiked on December 16th, but there was no immediate reaction in mortgage rates.  Some think that an economic contraction might not be too far away.  Others are concerned about a lack of inflation (which is good for longer term rates like mortgages).  Bottom line: the Fed rate hike has not been the death knell for low mortgage rates that many feared it would be, although the near term range is uncertain and rates could be more volatile than normal as we wait for a new trend to emerge.

  • As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).