Mortgage rates fell noticeably today, after being pushed up against the highest levels in nearly a month yesterday. In that sense, the positivity in the underlying markets allowed rates to breathe a sigh of relief, quickly returning to levels in line with last Tuesday's. When adjusted for changes in closing costs, the improvement was as much as 0.08% in some cases. Some borrowers may experience that in the form of significantly lower closing costs (no change in rate) while others may see an eighth of a point lower in rate for the same (or slightly higher) closing costs. After today, we're much closer to 4.375% being the most prevalently quoted 30yr fixed rate for the very best borrower scenarios (best-execution), though 4.5% shares much of that spotlight.
Keep in mind that the concept of "mortgage rates" involves both that upfront component and the interest rate itself. On most days, markets don't move enough for the actual interest rate to be change (mortgage rates tend to be offered in .125% increments, meaning it would take a lot of movement for a quoted rate to change while closing costs remain level).
While rates rarely move that much in one day (for instance, today was a bigger move, but was only 0.080 compared to the .125 gap between published rates), markets and loan pricing are still constantly moving. Smaller changes are made possible by the upfront cost component. For instance, today's improvement equates to roughly one third of one percent of the loan amount. So for every $100k financed, the benefit of today's drop in rates would be $300 in upfront cost on average. Again, some scenarios will be better served by moving to the next lower rate and adjusting closing costs while others will prefer to keep the same rate and pay less up front. In almost all cases, you should have the option to choose between the two (lowering the upfront cost, or lower the rate).
Loan Originator Perspectives
"Rates improved today thanks to weaker economic data. It appears the
weather excuse is starting to die down. As of 2 eastern, not many
lenders have passed along the gains. And tomorrow, we don't get any
major data except for new home sales, which I suspect will also be
weaker than expected. In addition, things might be heating up in
Ukraine which could cause a rush to safety rally. That said, I think
floating over night is the way to go. " -Victor Burek, Open Mortgage
"Sweet day in MBS Land today as both treasuries and mortgage backed securities posted solid gains (good for mortgage rates). Consumer confidence came in slightly below expectations. We're still in recent ranges, but trending towards the lower end. Been floating your loan? Good day to talk pricing with your LO. Those starting loans need to consider their risk tolerance when having the float/lock discussion with their LO's." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Looks like the weather effect could be running thin as an excuse for lackluster economic numbers. If this runs it's course and numbers continue to disappoint we could see a bit of reality come back into the picture for rates. Bad numbers help bonds and with excuses removed rates could move down. This wishful thinking, but with a big report next Friday things could come into to focus and rates will break one way or another. Consumers and lenders hope that break is down not up." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc NMLS # 107434.
Today's Best-Execution Rates
- 30YR FIXED - 4.375% - 4.5%
- FHA/VA - 4.0%
- 15 YEAR FIXED - 3.375% - 3.5%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The prospect of the Fed reducing its asset purchases weighed heavy
on interest rates for the 2nd half of 2013, causing volatility and
generally pervasive upward movement.
- Tapering ultimately happened on December 18th, 2013. Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn't make for another immediate spike higher.
- Rates moved gradually higher into the end of 2013 and began to move gradually lower into the beginning of 2014, helped along by a weak employment report on January 10th. This report raised doubts as to whether or not the Fed would continue tapering asset purchases at the same pace, but it was ultimately a flare up in emerging markets and weakness in stocks that fueled bond-market positivity and allowed rates to hit 2014 lows on the same afternoon the Fed reduced asset purchases by another $10bln.
- Rates got an ostensible push lower from weakness in stocks and emerging markets. As soon as those moves ran their course, the rate rally bottomed out as well. Now we're tentatively waiting for the next move.
- If anything, there has been some natural rebound against the nice move lower in January. Resistance to that move is low due to the fact that interest rates can't currently rely on weak economic data to help them stay lower (normally it would) because most of the weak economic data is being chalked up to unseasonably cold/snowy weather.
- (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from 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).