February 17, 2015
Mortgage rates got hit hard today, rising at the fastest day-over-day pace since November 8th 2013. As of today, this also makes February the worst month for rates since May 2013, and the most abrupt month-over-month reversal since January 2009. That all could change by the end of the month, of course, but then again, it could also get even worse. Either way, the strategy is and has been the same recently: we're in the midst of a strong negative trend that must be taken seriously unless/until it's convincingly defeated. Naturally, that assessment favors locking over floating, and naturally, it implies a ton of potential frustration for those who lock right before the bounce.
As for today's damage, it's meant an even eighth of a point in interest for most lenders. In other words, if you had been quoted 3.75% on Friday, today's quote would likely be 3.875%. Either way, costs are significantly higher. Borrowers being quoted the same rate as Friday would likely be looking at an additional $500-800 per every $100k in loan amount. Put another way, the price of NOT locking a $300k loan on Friday is right around $2000.
Loan Originator Perspective
"Rates continued their relentless march upward today. It appears we're officially past the "range-bound, could go either way" point. February has been a horrific month for rates, and I am locking at application, rather than risk borrowers losing their anticipated pricing. Floating? Might want to call your LO, stat." -Ted Rood, Senior Originator
"So much for the notion that bond selling was running out of steam. If you took the past lock advice to heart then you’re locked and very happy about it today. Treasury yields are still lower now than they were for almost all of 2014." -Jason B. Anker, Vice President- Loan Officer at Salem Five
"As the Greek Drama continues to unfold, and Fed Members start chatting the newswires about potential shifts in interest rate policy mortgage pricing was vulnerable to a sell off today. We have broken out of a short term downward range in rates that on it's face seems worrisome. If we get continued follow through tomorrow and the rest of the week it would cause me more worry for the intermediate term. Suffice it to say that locking up short term closing times now is important. For the longer term, if you can bear the risk of continued worsening in the short term than consider floating as we may very well bounce soon. No guarantees though." -Hugh W. Page, Mortgage Banker, Seacoast Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875
- FHA/VA - 3.25-3.5
- 15 YEAR FIXED - 3.00-3.125
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 began with a strong move to the lowest rates seen since May 2013. The catalyst has been and continues to be Europe.
- European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be. Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing. Some see this happening in early 2015. In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
- It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight. That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability. Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float. Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.
- 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).