Mortgage Rates resumed last week's pattern of volatility moving to meet their highest levels in roughly a month.  At this point, some lenders have entered transitional territory between the prevailing Best-Execution rate of 3.5% and the next notch higher at 3.625%.  Most lenders offer rates in 0.125% increments with variations in costs between them.  Until today, costs hadn't changed enough to move the average rate to the next rung on the ladder, and even today that process is only just beginning. 

(Read More:What is A Best-Execution Mortgage Rate?)

Whether or not rates continue to shift enough for the bulk of lenders to move up to that next rung on the ladder is more of a concern today than it recently has been.  We've been locked in a low, sideways rate environment, and relatively comfortable weathering minor gyrations within that spectrum.  Said spectrum is really any rate offering that remains inside the 3.5% best execution level, at least in it's most narrow sense.

Now's the time to assess whether or not you can tolerate additional volatility or if the current rate/fee offerings are advantageous enough to remove that risk from the equation.  In each case, "regret" is possible.  You may well decide to float only for rates to rise further.  Conversely, you might lock on a more nerve-racking day like today only to see a better rate offering come up between now and the time you would have otherwise had to make your decision. 

There's limited advice that addresses both of these possibilities, but in general, we advocate setting your own personal "stop-loss."  In other words, if you're not currently locked, how much worse would rates have to get before you would absolutely lock.  From there, personal perception can cause the process of setting such "stops" to vary greatly.  If the minor adjustments in the "cost" side of the equation (i.e. your interest rate quote is the same, but closing costs moved higher or lender credit decreased) are significant in your view, then you can even set your stop-loss somewhere within the same interest rate, but at a higher cost.

Others may have a longer term or otherwise less urgent strategy that would allow them to ride out bigger waves.  In those cases, the previous best-execution rate of 3.625% might be a better range boundary.  In other words, those in that more risk tolerant crowd could easily say "I see rates moving from 3.5% to 3.625% overall, but I won't lock until 3.625% is at risk of turning into 3.75%" 

As for now, 3.5% is at risk of turning into 3.625% if weakness continues in the coming days.  Unfortunately, the prospects for that remain rather mysterious and seem to have most to do with Europe.  Indeed, the bond markets that underpin interest rate movements were only really moving during the European trading session, which persists through 11am-Noon Eastern (depending on the section of the European market in question), and have flat-lined since then.  This is very much like a runner in baseball leading off from first base, and increasing that lead-off after a pop-fly.  The runner is ready to move in either direction depending on whether or not the outfielder drops the ball.

Long Term Guidance: We'd continue to advocate against trying to "get ahead" of current market movements due to the high degree of uncertainty.  For those with lower levels of risk tolerance who would consider movements in cost (despite unchanged interest rates) to be significant, or for those within 15 days of closing, or who are purchasing, this certainly favors locking.  For those with longer timelines, less urgency to refinance, or wider ranges of risk tolerance, we'd note the generally "depressed" rate environment due to the European crisis and simply keep our eyes peeled for the major changes in European policy that result in noticeable changes in Best-Execution mortgage rates (i.e. the actual quoted RATE is moving as opposed to simply the COST).  In either scenario, we'd consider that rates remain very close to all-time lows.

Loan Originator Perspectives

Victor Burek at Benchmark Mortgage

If you floated overnight, you might as well stay in the boat. Lenders hammered rate sheets this morning due to the weakness late yesterday and early this morning. Hopefully a bottom as in and rates hold steady or improve.  If that turns out to not be the case, there will come a time to cut losses, but I don't feel we're quite there yet.

Ted Rood, Wintrust Mortgage

Rates up today for little or no reason. It's times like this that illustrate the importance of risk tolerance. If you're uneasy about losing some day to day pricing while floating your rate, sure can't hurt to lock it in while rates are near all time lows. If you have a while before closing to ride out the daily changes, and don't lay awake at night wondering about rates, floating may still be the way to go.

Mike Owens, Partner with HorizonFinancial, Inc.

I'm locking as they come in the door as I always have. I can breath a lot easier knowing I don't have a stack of floaters to keep up with. It's much easier to deal with float downs and renegotiations if rates drop. Floating is playing with fire and the fire is not yet contained in my opinion.


  • 30YR FIXED -  3.5%, Some Approaching 3.375%
  • FHA/VA - 3.25-3.5% (varies more between lenders than conventional 30yr Fixed)
  • 15 YEAR FIXED -  2.75 - 2.875%
  • 5 YEAR ARMS -  2.625-3. 25% depending on the lender

Ongoing Lock/Float Considerations 

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating
  • But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn't always mean they're done improving.
  • (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as 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).