February 23, 2017
Mortgage rates moved lower for the 4th time in 5 days today, bringing them to their lowest levels since February 9th. The caveat to any discussion of rate "movement," however, is that the changes have been so small that they can really only be measured in terms of closing costs.
In other words, most borrowers will have seen the same NOTE rate (aka "contract rate," which is simply the interest rate applied to your loan balance). Contract rates are typically offered in eighth point increments (.125, .25, .375, etc). "Effective rates," on the other hand, take the upfront costs into consideration. These costs allow for more of a fine-tuning adjustment when compared to an eighth of a percentage point in contract rate.
For instance, on a $200k loan, it would take $1200-1600 in additional closing costs to move down an eighth of a point in rate--all things being equal. A lot of times, when we talk about rates improving, it simply means that the $1200-1600 of upfront cost would be lower. Let's say it would cost you $1200 yesterday to drop your rate quote by an eight. If it only costs $900 today, your "effective rate" has moved down.
Contract rates continue running in the 4.125%-4.25% range on top tier scenarios (30yr fixed, conventional). With today's gains, a few more lenders have migrated to 4.125%. Borrowers still being quoted the same rate as yesterday should be seeing slightly lower closing costs for reasons explained above.
Loan Originator Perspective
Tough call today. We’re at the bottom of the two week range and very close to the bottom of the three month range. If you believe in the range then it’s time to lock because yields can’t go lower than the range right? Wrong. It’s only the range until it breaks. Will this one break? No clue. I suspect it needs to break soon due to the consolidation pattern we’re in. If you have the ability to sustain a little loss then float on. If the ranges breaks to the low side then you will be handsomely rewarded. I can see why many would be tempted to float. -Jason B. Anker, Vice President- Loan Officer at Salem Five
Both treasuries and MBS posted solid gains today, and neared levels last seen the first week of February. That rally was brief, and it's too early to pronounce current movement a rally yet, but gains, for the lack of a better word, are good. Borrowers who floated past yesterday should see pricing improvements today. It will take concerted market motivation for rates to drop from these levels, the question is whether that motivation exists yet. I wouldn't bet on it. -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.125-4.25%
- FHA/VA - 3.75-4.25%
- 15 YEAR FIXED - 3.375-3.5%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates had been trending higher since hitting all-time lows in early July, and exploded higher following the presidential election
- Some investors are increasingly worried/convinced that the decades-long trend toward lower rates has been permanently reversed, but such a conclusion would require YEARS to truly confirm
- With the incoming administration's policies driving a large portion of upward rate momentum, mortgage rates will be hard-pressed to return to pre-election levels until well after Trump takes office. Rates can move for other reasons, but it would take something big and unexpected for rates to get back to pre-election levels.
- We'd need to see a sustained push back toward lower rates (something that lasts more than 3 days) before anything less than a cautious, lock-biased approach makes sense for all but the most risk-tolerant borrowers.
- 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).