June 24, 2016
Mortgage rates plummeted today following the surprise victory of the referendum for the U.K. leaving the European Union (aka "Brexit"). This joins the ranks as one of the few days in history where rates have moved a full eighth of a point in a single day. There have only been 9 instances in the past decade, and the most recent example was in October 2014. In that sense, it's the single best day for mortgage rates in more than a year, not to mention the fact that outright levels are getting very close to all-time lows.
From yesterday's most prevalent conventional 30yr fixed quote of 3.625%, we're now easily down to 3.5% for most lenders. A few of the most aggressive lenders are already down to 3.375% on top tier scenarios. Back in 2012, 3.375% was the lowest rate that was maintained for more than a few days, although there were a few windows of opportunity for 3.25% and 3.125%. Considering some of the higher costs associated with today's mortgages (government guarantee fees and servicing costs), we're effectively back in line with all-time lows.
So should you lock? I thought you should lock even before the Brexit vote. Had it gone the other way, rates could be rising just as rapidly as they're falling today. As far as locking in these gains, a lot depends on the lender in question. This sort of huge market movement always results in widely varied pricing strategies among lenders. In cases where the lender has clearly moved in line with markets, I'd take a closer look at locking. In cases where a lender is clearly catching their breath before passing along the improvements, I might wait.
How will you know the difference? If you can get a rate that's an eighth of a point lower today with no change in closing costs, that's the full meal deal. Strongly consider locking. If rates are the same as yesterday with only moderate improvements in closing costs, it could make more sense to wait, all other things being equal.
Loan Originator Perspective
"The unraveling of the EU project has begun. Day 1 has brought lower rates and the promise of volatility both now and in the future. The legal unraveling of the UK’s involvement in the EU is expected to take up to two years and no one knows what it will look like. Pundits expect this to have a negative impact on the UK economy which could or perhaps more likely should spread around the world. To what degree? Who knows, this is a first. Your one takeaway in my opinion should be to prepare for volatility. If you like it, lock it. " -Jason B. Anker, Vice President- Loan Officer at Salem Five
"World markets appear stunned at Britain's "Leave" vote. The trend is now decidedly our friend. Float." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.5%
- FHA/VA - 3.25%
- 15 YEAR FIXED - 2.75%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Markets had been primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
- The possibility that the U.K. would vote to exit the European Union (Brexit) has since taken over as the biggest flashpoint for markets.
- The Fed freely admits it didn't hike in June because of this and because it wants to be sure that jobs numbers aren't taking a bigger turn for the worse. Mortgage rates moved farther into 3-year lows as a result.
- Brexit happened and rates rejoiced. Lock if you like what you see. The longer term trend remains positive regardless, but periodic corrections toward higher rates continue to be a risk.
- 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).