October 17, 2014
Mortgage rates moved slightly higher today, continuing a pull back from the best levels in 16 months on Wednesday. That said, apart from the first 3 business days of this week, today's rates would also qualify as th16-month lows. The weakness pushed the most the average top tier quote closer to 4.0% today, but 3.875% and even 3.75% remain viable options for borrowers who aren't opposed to paying a bit more upfront in exchange for a lower rate.
Keep in mind, there is nothing deceptive, sinister, or even ill-advised about paying so-called "points" in certain circumstances. It's always easy to determine whether or not it makes sense for you by simply asking your lender for 2 options--one with points and one without--and seeing how long it would take to recoup the upfront cost associated with the lower payment. As a rough example, a top tier quote at 4.0% with no points might also be quoted 3.75% with around 1.2 points. It would only take 4.8 years for the monthly payment savings at 3.75% to supersede the 1.2 point upfront expense. Whether or not this makes sense to any given borrower is a matter of personal preference.
Looking back on this week, rates experienced a level of volatility not seen in over a year. Wednesday in particular was one of the most uniquely volatile days in bond market history. In fact, we've never seen such massive improvements followed by such massive weakness in such a short space of time except on days where there is clear and significant motivation from events or headlines. As we've discussed so far this week, that's created aftershocks for lender rate sheets manifesting in erratic pricing behavior (rate sheets moving in bigger chunks and with less correlation to other lenders or market movements).
Right now, the bigger risk is that the weakness will continue, though history suggests we might not be able to confirm that for a few more days. Even then, it wouldn't necessarily mean the longer-term trend toward gently lower rates in 2014 is defeated. Bottom line, if your price sensitivity is high or time horizon short, floating is risky in this environment. Even if rates make it lower than they were today, it might not happen soon enough for your scenario.
Loan Originator Perspective
"Despite the weakness following the huge rally on Wednesday, the trend is still our friend. MBS opened weaker and lenders worsened pricing more than the price drop justified. In their defense, the market has been quite volatile. I don't like locking on Friday, and that continues today. If you can tolerate the suspense of the weekend, i would float until Monday and re evaluate pricing with your loan officer." -Victor Burek, Open Mortgage
"Sure feels like we've been on the wildest ride ever for rates this week. In the end, we are in a new bullish range for mortgage rates. Technicals are favorable and I'm leaning on that for the next few weeks. There's absolutely no doubt that rates can rise substantially and quickly, but I'm betting the opposite happens. Only locking loans that are cleared to close. " -Constantine Floropoulos, Quontic Bank
"Rates are still at year and a half lows, floating in this environment is just being greedy and there is too much risk for rates to rise. If you need to lock in the next 2-3 business days... locking is the way to go. Any thoughts of floating will have to wait for me, until next week when we get a better sense of whether this was a temporary move lower or one that may have some further momentum." -Brent Borcherding, brentborcherding.com
"Rates are pretty flat today to end the week. A week that included one of the most volatile wide swinging days in recent memory on Wednesday. Pricing has settled down to the bottom of the recent short term range of improvement begging the question where do we go from here? I think it's easy to make a case for rates to go either direction next week so those with short term locks needed should seriously consider locking in and longer term locks can see what happens next week and hopefully get some clarity." -Hugh W. Page, Mortgage Banker, Seacoast National Bank
"Mortgage bonds were very resilient in the face of a huge equity rally. I am encouraged by this and see it as a sign that rates may stay at these levels for a time or possibly move lower. As we know things can change quickly but floating over the weekend may be a safe move." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0 (3.75-3.875 with points)
- FHA/VA - 3.5
- 15 YEAR FIXED - 3.25
- 5 YEAR ARMS - 3.0 - 3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 has been a narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower.
- European markets helped that process along and continue to play a prominent role in keeping US rates lower than they otherwise might be.
- For most of the Summer and early Fall months, rates held a narrow range of 4.125% -4.25% (essentially where the 2014 rate recovery has bottomed out) and finally broke to a 3.875%-4.0% range in mid-October. It's too soon to tell if this is a brief window of opportunity or the continuation of 2014's very gradual improvements.
- 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, 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).