The Mortgage-Backed-Security (MBS) market took a beating this week. MBS are the bonds that directly correlate to mortgage rates. Some upbeat news on the stock market and some better than expected financial reports created a sense, among some, that the worst may be over for this troubled economy. The stronger the economy, the higher interest rates go, in general.
In addition, inflation is still very high historically. A key report came in higher than expected on Tuesday which caused a very large sell-off in the MBS market, thus raising rates.
For a reference point, rates are higher by anywhere from .375 - .5 %. That's a very big swing for one week.
There are two ways to approach decisions to float or lock at this point. If you agree with the stock market bulls, then you are probably a locker, and if you agree with the bears, you are a floater. What do I mean by this? Remember that, in general, the weaker the economy the lower the interest rates. The bulls believe the worst is over for the credit crunch, the mortgage meltdown, etc... If you count yourself among them and believe that the Dow is on the way back up, you would probably want to lock your rate.
If you are a market bear and believe that this week is just a bounce on the way down (for the economy), then you will probably want to hold out for what should be some improving rates. Another feather in the bear's cap is that mortgage bonds have regained a bit of their quality perception which lowers the risk premium they must offer compared to a ten year US treasury. The more days we go without horribly shocking mortgage headlines, the more traders are persuaded to put their money in mortgage bonds as opposed to the lower yielding US treasuries. So again, this gap between treasuries and mortgage bonds has been closing (slowly, albeit), and so when the market sentiment does turn, we'll be that much farther ahead.
So I hate to leave you with an "either/or" lock float recommendation, but the truth is that even the worlds' greatest geniuses could disagree on the direction of interest rates in this day and age. That's why I'm arming you with the facts and giving you the "if/then" scenario. As for myself? I'm a bit more of a market bear than a market bull. Nonetheless, I'm always amazed at the resiliency of stocks in the face of the gathering economic storm. So despite my cynicism in general, it's not enough to make a firm bet against the stock market in hoping rates will get lower.