Mortgage rates moved higher for the 5th day in a row as financial markets prepare for the results of the U.K. referendum on its European Union membership (aka "Brexit").  In general, rates are expected to rise if the U.K. remains in the EU, and rates could fall back toward recent lows if the U.K. votes to leave the EU.  These expectations pertain only to short term (i.e. within a week or two of the decision tomorrow morning).  From there--especially in the case of a "remain" vote, the next jobs report on July 8th would be especially important as it could have a big impact on the Fed rate hike outlook (the Fed recently said that Brexit and a potential shift in employment data are the two biggest hurdles preventing a rate hike).  

While some parts of financial markets are experiencing fairly significant volatility ahead of the Brexit vote, mortgage rate movement has been fairly steady.  That doesn't mean rates aren't moving higher--simply that they've been moving higher at a slower pace than other interest rates (10yr Treasury yields, for instance--a widely used benchmark for mortgage rate movement).  After making it as low as 3.5% last week, 3.625% is once again the most prevalent conventional 30yr fixed quote on top tier scenarios.  

The Brexit decision will do whatever it's going to do to markets well before any lenders release rate sheets tomorrow.  The only way to avoid the potential negative fallout would be to lock today.  There's no guarantee the fallout will be negative, but it's a risk that's worth guarding against considering rates are still so close to recent long-term lows.

Loan Originator Perspective

"You don't want to be on the wrong side of the trade.  In all likelihood there will not be an exit, and markets have not fully priced this in.  Locking in for 30-45 days makes sense. Depending on the data to roll out in the following weeks we may see rates dip again, but for now prepare for the worst."  -Constantine Floropoulos, VP, The Federal Savings Bank

"The Brexit Panic has abated now, as it appears Britain will remain in the EU, and rates continued sliding upward.  While it's never fun when that happens, at least we're still where we started, pre-Panic.  Short term momentum is definitely towards higher rates, and there's no discernible long term trend apparent.  For now, I'm back to locking earlier in the process, would rather be slightly defensive then risk clients losing their lender credits or desired rate." -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 3.625%
  • FHA/VA - 3.25%-3.5%
  • 15 YEAR FIXED - 2.875%
  • 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.
  • If the UK votes to remain in the EU and if the next jobs report is strong, watch out.  Between now and then, volatility will be elevated and improvements in rates will be slow in coming (which is always the case when we're at long-term lows).  These have historically been good opportunities to lock, despite the longer term momentum remaining positive. 
  • 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).