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via: Mortgage News Daily.
As was the case at the beginning of last week, Mortgage Rates moved slightly lower today, once again hitting new all-time lows. In a bit of a departure from the norm, it was domestic economic data (as opposed to European headlines) that did more to move bond markets into stronger territory today. MBS (the Mortgage-Backed Securities) that most directly influence mortgage rates, are part of the bond market, and when bonds are “stronger,” it connotes rising prices and falling yields (meaning lower rates).
That said, the day to day movement in the mortgage market is seldom large enough to noticeably shift the balance from one prevalent interest rate to the next. Considering that mortgage rates are generally separated by 0.125%, it would take a fairly violent day of movement to get to the next higher or lower interest rate. Because of this, we follow the day-to-day movement in borrowing costs charged by lenders for a given rate. It’s those borrowing costs that actually moved lower today while the prevailing Best-Execution rate for Conventional 30yr Fixed Loans remains at 3.5%-3.625%
(Read More:What is A Best-Execution Mortgage Rate?)
Long Term Guidance: We’d continue to advocate against trying to “get ahead” of current market movements due to the high degree of uncertainty. While it’s a reasonably safe assumption that European concerns will generally help rates stay lower than they otherwise would be, that “otherwise would be” part is very much a moving target. Best bet is to focus on the fact that rates are at their all time lows, and can change quickly based on events that aren’t “scheduled” or able to be forecast. Risk vs reward for floating vs locking looks a bit larger than we’d like, but not out of the question for those who understand the risks and have an exit strategy if things don’t go their way.
We spoke to one originator who offered a slightly more direct approach to this guidance: “What do lemmings, the Price is Right Yodeller and rate floaters all have in common? Everything looks great till the bottom falls out underneath you. Regardless of the continued decline in rates, the bottom will drop out. How close to the edge of that cliff do you want to get?”
Loan Originator Perspectives
I’m running out of unique comments to make as MBS are consistently improving. The main thing I’d be wary of is a change in guidelines for any intricacies of your loan. You might think you’re the perfect borrower, but underwriters can always come up with “something.” Surprise guideline additions happen frequently but, for the most part, locked loans are safe.
Ted Rood, Senior Mortgage Consultant
Risk versus reward is investing’s oldest adage. Mortgages are no different. While rates have continued to trend downward, the reward of floating (slightly lower rates or higher lender closing cost contributions) must be balanced against the risk (possibility of rates rising rapidly). Odds probably favor floating for anyone willing to assume some risk, but if you do so, better be ready to not look back if you lose some pricing on your loan.
I still say lock because anything can happen that could drive rates higher overnight. I also have re-negotiation options so even if locked, we can go down in rate.