Mortgage rates dropped significantly today, officially hitting the lowest levels in almost exactly 1 year.  For most lenders, that means a conventional 30yr fixed rate quote of 3.625% for top tier borrowers, though there are still quite a few lenders at 3.75%.  That’s an important point to keep in mind today as several lenders are still much closer to Friday’s rates.  Even then, a “significant drop” will mean different things depending on your point of view.

For instance, if you follow each day’s market movement, today is indeed a bigger drop in rates than average.  In fact, there are usually less than 20 days in any given year that move this much.  From another perspective, it leaves plenty to be desired.  Case in point: lots of lenders are still quoting the same rates as Friday, but with slightly lower closing costs.  Lenders who are quoting lower rates won’t have moved any more than 1/8th of 1 percent (0.125%).  

This is a symptom of a well-known disease in the mortgage market.  The bonds that underly mortgage rates (MBS or “mortgage-backed-securities”) tend to act more like the rest of the interest rate world when trading is calm, but they tend to underperform when the rest of the interest rate world is moving quickly lower.  So on days like today when 10yr Treasuries (a perennial yard-stick for MBS and mortgage rates) is down 10bps, it’s no surprise to see most lenders haven’t lowered rates by a similar amount.  

Theoretically, if market trading levels held their ground right here, mortgage rates would have a bit farther to fall, but of course, there’s never a guarantee that markets will hold their ground.  We have a positive long-term trend that is very much intact.  It has consistently offered opportunity this year.  The opportunity is offset by the risk that markets will bounce along with the enticement of the lowest rates in more than a year.

Loan Originator Perspective

“Rates are low.  Lock.  Renegotiate if you need to, if rates drop further.  Don’t miss out.  Buyers…lock.  What do you mean you didn’t refinance before?  Do it. Now.” –Matt Hodges, Charlottesville Sales Manager, Presidential Mortgage Group

“Rates continue to move lower.   If you have been floating, you should be seeing a lower interest rate.  At this point, if you lock, you walk away a winner, and there is never anything wrong with that.  If you can tolerate the risk, I think I would continue to float and see if this rally can extend even further.  The trend is our friend right now.” –Victor Burek, Churchill Mortgage

Today’s Best-Execution Rates

  • 30YR FIXED – 3.625 – 3.75%
  • FHA/VA – 3.5%
  • 15 YEAR FIXED – 3.125
  • 5 YEAR ARMS –  2.75 – 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • The Fed finally hiked on December 16th, causing fears of rising rates in 2016.
  • But  global financial markets came into the new year in distress.  Now markets aren’t even convinced that we’ll see another Fed rate hike in 2016.  Major stock indices plummeted around the world, and investors sought shelter in the bond market.  When investor demand for bonds increases, rates fall.
  • So we’re left with much lower mortgage rates despite the Fed having just begun its hiking cycle.  This paradoxical trend can continue as long as global market turmoil fuels a demand for safer haven investments.  A big bounce in oil/stock prices could mean trouble for rates–at least temporarily.
  • As always, please keep in mind that the rates discussed generally refer to what we’ve termedbest-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).