Mortgage Rates Continued Lowered - Do You Take Advantage or Become More Agressive?
Mortgage
Rates continued
lower at a fairly brisk pace today, extending the already impressive
drop that followed Friday's employment data. By Friday afternoon, the
longstanding 4.625% rate was sharing equal space with 4.5%. Today's improvement
results in 4.5% standing alone as the most prevalently-quoted conforming 30yr
fixed rate for ideal loan scenarios. There continues to be a fairly large gap
between rates in terms of the cost required to buy down to 4.375%.
This significant shift lower in rates is now on par with that seen in September when the Fed held off tapering. That more than qualifies it as one of the pockets of recovery running counter to the longer-term trend toward higher rates. In other words, if we think of the overall path as 2 steps higher, 1 step lower, this would be the latter.
The question then becomes: how do we best take advantage of this reprieve? There are essentially two ways. First, you can just lock right now. This is obviously the more conservative approach, but with further movement higher being the default and scattered positivity being the exception since May 2013, the conservative approach has been the best bet in general.
The more aggressive approach stands a better chance to capitalize on further movement but isn't without its risk. It simply involves setting a limit in terms of rate and costs. If your quote goes above that limit, you lock. The most conservative way to set the limit would be right at today's quote, meaning that unless rates improve tomorrow, you'd lock. From there, you could increase your flexibility and risk by setting the limit slightly higher, either by .125% in rate or in terms of increased closing costs.
For instance, if you're at 4.5% today paying 0 points, you could either set your line in the sand at 4.625% with 0 points or 4.5% with 0.5 points. By taking both rate AND cost into consideration, you'd hit your lock trigger sooner. That could help avoid additional losses if the market is moving slowly. A caveat for all of this though, is that markets' natural predisposition is always at risk of being thrown off if the incoming data is compelling enough.
In summary, nice gains again today as Friday's rally shows some staying power. We mentioned on Friday that floating over the weekend might be productive, and it was. If you're floating a loan, you've gained enough ground that even losing a little puts you ahead of last Thursday's rates. Wouldn't be surprised to see further improvement, but have no expectation of rates in the 3's anytime soon either.
This significant shift lower in rates is now on par with that seen in September when the Fed held off tapering. That more than qualifies it as one of the pockets of recovery running counter to the longer-term trend toward higher rates. In other words, if we think of the overall path as 2 steps higher, 1 step lower, this would be the latter.
The question then becomes: how do we best take advantage of this reprieve? There are essentially two ways. First, you can just lock right now. This is obviously the more conservative approach, but with further movement higher being the default and scattered positivity being the exception since May 2013, the conservative approach has been the best bet in general.
The more aggressive approach stands a better chance to capitalize on further movement but isn't without its risk. It simply involves setting a limit in terms of rate and costs. If your quote goes above that limit, you lock. The most conservative way to set the limit would be right at today's quote, meaning that unless rates improve tomorrow, you'd lock. From there, you could increase your flexibility and risk by setting the limit slightly higher, either by .125% in rate or in terms of increased closing costs.
For instance, if you're at 4.5% today paying 0 points, you could either set your line in the sand at 4.625% with 0 points or 4.5% with 0.5 points. By taking both rate AND cost into consideration, you'd hit your lock trigger sooner. That could help avoid additional losses if the market is moving slowly. A caveat for all of this though, is that markets' natural predisposition is always at risk of being thrown off if the incoming data is compelling enough.
In summary, nice gains again today as Friday's rally shows some staying power. We mentioned on Friday that floating over the weekend might be productive, and it was. If you're floating a loan, you've gained enough ground that even losing a little puts you ahead of last Thursday's rates. Wouldn't be surprised to see further improvement, but have no expectation of rates in the 3's anytime soon either.
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