Mortgage rates rose gently to begin the holiday-shortened week despite improvements in the underlying bond markets. Some lenders’ rate sheets are little changed from Friday’s latest offerings while others are marginally higher in cost with no change to the Best-Execution rates, which moved higher from 3.25% to 3.375% after Friday’s jobs report.
We’d discussed the risks of rising rates at the end of last week and left the door open for the current month to take the shape of previous Octobers, which have recently been bad months for interest rates in general. Making it through this Tuesday after a three day weekend with rates relatively unchanged goes a long way toward shutting that door. Resting on the heels of a strong Jobs report (relatively), those three days were more ominous than the three remaining days of this week.
There are other factors in play that are keeping rates slightly more elevated compared to trading levels in the underlying market and both deal with capacity. The most obvious capacity constraint is the sheer volume of loans that lenders are processing due to recent record-low rates. When lenders get too busy, they can use their rate sheets to throttle demand among prospective borrowers.
Long Term Guidance: While the recently high degree of uncertainty remains very much intact, the Fed’s decision to specifically target Mortgage-Backed-Securities in a third round of Quantitative easing provides a supportive undertone for mortgage rates. We’d still advocate not trying to get too far ahead markets. In other words, we wouldn’t try to guess how low or how high rates might go before changing course. Rates remain near all time lows and risks of volatility remain high. Those factors suggest that you stay vigilant regarding the day-to-day swings in mortgage rates. If you’re floating, set a limit as to how high rates would have to go before you cut your losses and locked. Similarly, set a target of how low rates would have to get before you lock.
Loan Originator Perspectives
“Lenders are busy. Seemingly so, to ask for more minutia. Trust me your
loan originator doesn’t want to ask you about a $300 cash deposit or
have you source it. Patience rules, still.” –Bob Van Gilder, Finance One Mortgage.
“Record low rates mean increased submissions, and we’re running 45 days
for refis with appraisals versus 30 for purchases and streamlines.
Definitely seeing some pipeline control (less aggressive pricing) on
rate sheets, but whenever I can write a 30 year fixed paying costs at
about 3.25%, it’s great day to be a loan officer!” -Ted Rood, Senior Originator, Bank Star
“All lenders are busy and I do think they have taken a little away from
pricing to try to slow down volume and catch up. Purchases are
getting priority which is good, but refinances are simply waiting to be
approved with no urgency. They will get to it when they get to it. I
think this will continue to be the case well into next year. Of
course anything could happen.” –Mike Owens, Partner with HorizonFinancial, Inc.
“I couldnt be more busy with refinances. I am seeing slightly weaker
rate sheets today when compared with Friday’s. I would float all loans
into tomorrow, then go back to my strategy of floating until you are
within 15 days of funding then locking. I feel locking on longer terms
is too conservative, but if you are not a risk taker nothing wrong with
locking in.” –Victor Burek, Benchmark Mortgage.
“Not locking today unless we see price changes for the better. But taking
this chance to remind clients that rates don’t just drop, and that
clients need to be pre-approved in advance so we can lock their rate on
dips. Because as all lenders (but not enough consumers know) a locked rate isn’t a closed loan.” –Julian Hebron, Branch Manager, Loan Agent, RPM Mortgage
Today’s Best-Execution Rates
- 30YR FIXED – 3.375%
- FHA/VA – 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED – 2.75%
- 5 YEAR ARMS – 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates and costs continue to operate near all time best levels
- Rates could easily move higher or lower, but given the nearness to all time lows, there’s generally more risk than reward regarding floating
- This will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn’t always mean they’re done improving.
- (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).