Monthly Archives: April 2016
Bonds are currently pointing to slightly higher rates, yet the average lender is unchanged compared to yesterday’s latest levels. This has to do with today’s trading momentum in bonds. They pointed to higher rates in the early morning, but recovered just before mortgage lenders sent out rate sheets. As such, lenders were perhaps a bit more conservative than they might have been if markets were simply unchanged versus yesterday. Several hours later, bond markets began slipping, again pointing to slightly higher rates. A small minority of lenders may adjust rates between now and the end of business today, but not enough to push the average off course.
This discrepancy between what markets are saying and what lenders are offering is useful. It lets us know that–all things being equal–rates will be slightly higher tomorrow if bond markets don’t budge from here. The catch is that they usually do budge, but the point is that the imbalance tips the scales just slightly in favor of locking. And the scales were already looking a bit tippy.
With rates near recent lows and some apparent resistance to further improvement, locking is a more compelling option than it had been a few weeks ago. What about floating? There’s a place for that strategy as well, as long as you understand the risk that markets could move against you and you’re prepared to lock at a higher rate if markets move too much.
Mortgage rates were little changed today, keeping them in line with the lowest levels in nearly 3 years. Specifically, there have only been 2-3 days with better rates since May 2013, depending on the lender. That puts the average lender at 3.625% in terms of conventional 30yr fixed rate quotes for top tier scenarios. Some of the more aggressive lenders continue to offer 3.5%. These rates are a mere quarter point higher than the all-time lows seen from late 2011 through early 2013.
With that in mind, locking is never a bad idea–especially if you had previously held off in hopes that rates would improve. The more aggressive approach would be to acknowledge that rates have been in a downtrend since at least mid-March, and resolve to lock when that trend ends. The trade-off for the chance to lock at rates that are slightly lower than today’s is that you might end up being forced to lock at rates that are slightly higher than today’s.
At current levels, there are a separate set of considerations for different loan types–especially FHA. Understanding this requires a bit of background on the financial markets that underlie mortgage rates. Simply put, most mortgages are designed to fit in a certain bucket with other mortgages that share similar attributes. Rates haven’t ever been low enough for long enough to create enough demand for a bucket that can accept FHA rates lower than 3.25%. As such, many of the better-priced FHA lenders have been stuck at a lower bound of 3.25% for quite some time, and that will continue to be the case unless the broader rate spectrum moves even lower and looks like it will hold its ground. With all of that in mind, for borrowers who are being quoted 3.25% on FHA loans, there’s obviously far less incentive to floating your rate.
On a final note, keep in mind that 30yr fixed FHA loans have mandatory mortgage insurance for any loan-to-value. As such, conventional borrowers with good credit typically have lower payments even though top tier conventional rates are slightly higher.