July 1, 2016
Mortgage rates fell moderately today, adding a 6th day to a winning streak that began with last week's Brexit news and bringing rates right to the brink of all-time lows. Mortgage rate movement can be measured in large and small chunks. The large chunks would be the changes in the actual interest rates being quoted and the small chunks would be the changes in the points associated with any given rate. "Points" have a historically negative connotation to some, but they're very objective, simply referring to the upfront costs or credit on a rate quote.
For instance, if you were quoted a rate of 3.5% with no origination fee, you might also have the option to get a rate of 3.375% with an origination fee of 0.7% of the loan amount. Moving the other direction, a rate of 3.625% could result in the lender being able to pay 0.7% of your closing costs. For what it's worth, the cost to move up and down in rate isn't always 0.7%, and it can also vary based on which 2 rates you're comparing. In other words, it may not cost much in terms of upfront cost to move down from 3.75% to 3.625% at a certain lender, but it could cost quite a bit more to move to 3.5%.
All of that background sets the stage for an understanding of how rates usually move each day. More often than not, markets don't move enough for the RATE itself to change. Rather, it's the "points" piece of the equation that changes. The past week has been an exception. And the actual "rate" piece of the equation has moved down 0.25% in some cases, bringing some lenders from 3.625% to 3.375%, which is now the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios.
Why is 3.375% important? Simply put, the next time rates move a notch lower, they'll be back to official all-time lows. In fact, 3.375% is the lowest rate that markets were able to maintain for more than a day or two back in 2012.
Loan Originator Perspective
"This current trend toward lower rates is our friend for now. Lenders have been cautious enough that they won't be forced to raise rates too much if market trends happen to reverse significantly on Tuesday. More risk tolerant clients are more than justified in floating until we see that sort of pull-back. Less risk-tolerant clients, or those closing in the nearer future should consider the fact that rates are close to all-time lows and have improved for 6 straight days. That usually means a pull-back is coming. Even if it doesn't derail the longer term trend, it could make today or Tuesday look like good lock opportunities in the short-term." -Constantine Floropoulos, VP, The Federal Savings Bank
"I am not a fan of locking ahead of a holiday weekend, so I favor floating. Rate sheets are improved today, so as always, if you are happy with your current pricing, nothing wrong with locking in the gains. It is always better to lock when you should have floated, then to float when you should have locked." -Victor Burek, Churchill Mortgage
"MBS and treasuries improved slightly today, although my rate sheets were virtually identical to yesterday's. It's encouraging that we're holding 10 year yields below 1.5%. A month ago, that yield was 1.81%, we've been on quite a tear since then. I'm hoping secondary desks will pass the gains through to rate sheets, and since it appears they haven't yet (or at least not all of them), I'll continue floating most new loans. Happy 4th, we're not perfect, but I'm sure glad to be an American." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.375%
- 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).