April 11, 2016
Mortgage rates were little changed today, keeping them in line with the lowest levels in nearly 3 years. Specifically, there have only been 2-3 days with better rates since May 2013, depending on the lender. That puts the average lender at 3.625% in terms of conventional 30yr fixed rate quotes for top tier scenarios. Some of the more aggressive lenders continue to offer 3.5%. These rates are a mere quarter point higher than the all-time lows seen from late 2011 through early 2013.
With that in mind, locking is never a bad idea--especially if you had previously held off in hopes that rates would improve. The more aggressive approach would be to acknowledge that rates have been in a downtrend since at least mid-March, and resolve to lock when that trend ends. The trade-off for the chance to lock at rates that are slightly lower than today's is that you might end up being forced to lock at rates that are slightly higher than today's.
At current levels, there are a separate set of considerations for different loan types--especially FHA. Understanding this requires a bit of background on the financial markets that underlie mortgage rates. Simply put, most mortgages are designed to fit in a certain bucket with other mortgages that share similar attributes. Rates haven't ever been low enough for long enough to create enough demand for a bucket that can accept FHA rates lower than 3.25%. As such, many of the better-priced FHA lenders have been stuck at a lower bound of 3.25% for quite some time, and that will continue to be the case unless the broader rate spectrum moves even lower and looks like it will hold its ground. With all of that in mind, for borrowers who are being quoted 3.25% on FHA loans, there's obviously far less incentive to floating your rate.
On a final note, keep in mind that 30yr fixed FHA loans have mandatory mortgage insurance for any loan-to-value. As such, conventional borrowers with good credit typically have lower payments even though top tier conventional rates are slightly higher.
Loan Originator Perspective
"Bonds opened weaker this morning, but regained their footing and are essentially flat as of early afternoon. My rate sheets were marginally better than Friday's for most programs. After last week's gains, I'll take a holding pattern for now, it's nice to see the improved pricing hang around instead of vanishing overnight. There's inflation data and treasury auctions looming later this week. It will be interesting to see if/how domestic data impacts bond markets, as opposed to central banks' rhetoric, which was last week's motivation. Lock if you like your pricing. If you're willing to risk current pricing in hopes of larger credits/lower rates, have your originator on speed dial!" -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25%
- 15 YEAR FIXED - 2.875 - 3.00%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- The Fed finally hiked on December 16th, causing fears of rising rates in 2016, but markets began the new year with rates moving surprisingly lower. Major losses in stocks and oil prices were part of the same trend of investors moving away from risk.
- After bottoming out fairly close to all-time lows in February, rates began to rise somewhat sharply in March as market panic subsided and as the Fed signaled it would probably still hike rates in 2016--just not as quickly as anticipated.
- It remains to be seen whether markets can continue to move in this risk-friendly direction (read: bad for rates, good for stocks). Stocks have yet to break out of a gradual downtrend that began in mid-2015. If they do, it could keep pressure on rates to continue higher.
- We HAD been leaning toward locking since March 1st, which has proved to be a very solid strategy, but began to reconsider starting the 3rd week of the month. We've been more open to the idea of floating since then, as long as you're setting a stop-loss level somewhere overhead, meaning you'd lock to avoid further losses if markets move against you.
- 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).