Mortgage Rates Fall After Last Week's Increase

By Liz Clinger Updated on 10/11/2012

Mortgage rates have been making major headlines lately, and today’s improvement over last Thursday is no different. Although rates are still the lowest the market has seen in some time, this week rates actually rose, making some in the financial world slightly nervous. However, today brought a significant drop in rates from last week. While every case is different, the drop means a rate of roughly 3.25% for the more vigorous lender. Other lenders, while offering lower borrowing costs, are at a rate of 3.375%.

Thursday, October 11, 2012

In what might be seen as a precursor to lender’s rate sheets carrying rising rates, security-backed mortgages and bond markets did not start the day strong. Yet the rates markets rallied, leveling off this morning and beginning to improve prior to the Treasury auction this afternoon. The auction was reasonably successful, which brought continued improvement in rates. Some lenders even opted to offer improved rate sheets into the afternoon.   

In the Long Term

The government’s recent decision to include mortgage-backed-securities in their third round of quantitative easing has given mortgage rates a supported landscape of late. As with any market-based scenario, there is still a relatively high degree of uncertainty with mortgage rates and trying to predict future market movement could land you in trouble. It is inadvisable to play a guessing game with rates, such as trying to suppose how high or low the market rates might go in order to decide whether or not to change course. The overall trend of the market is this: rates are still close to all time lows while the volatility risks are still high. With this kind of market landscape, the best thing to do is to follow the daily mortgage rates movement as consistently as possible. If you find yourself floating it is a great idea to determine how high you are willing to let the rate get before you lock as well as how low the rate needs to get in order for you to lock. This will allow you to navigate the loan process and the market fluctuations smartly.  

An Ideal

In a perfect world, a few ideal mortgage scenarios might be:

• A 30 year, fixed rate mortgage at 3.375% interest.
• A 15 year term at a fixed rate of 2.75%
• A 5 year ARM, or adjustable rate mortgage, set at 2.625% to 3.25% rates, dependent on the lender
• A FHA or VA mortgage, if applicable, set at a 3.25% interest – be advised, there is more variation among FHA/VA approved lenders than with traditional loans

Note: These rates may differ, depending on your lender, your location, or various other factors. Please check with your local lenders to find the rates and mortgage terms that are right for you.

To Float or to Lock

When deciding whether you should float more or cut your losses and lock, there are several factors to consider. Mortgage rates are currently near all time lows. This means that floating is now more or a risk than anything else, as while rates are almost at all time lows that fact alone does not mean that further drops are impossible as the 2011 fiscal year proved. Loan originators are seeing the more conservative refinance clients take advantage of these record low rates and locking before the rates rise. More aggressive refinance clients tend to be the ones to float, choosing to wait for major world financial events to force the rates even lower, especially if they have already capitalized on refinancing in recent months. Some experts would advise finding out whether or not your lender has re-priced, because mortgage rates tend to be rallying in the mid-to-late afternoons. There is usually a 15 day window in which to lock in your rate. If you are still within the 15 day locking window and your lender has re-priced, go ahead and lock. But if your lender has not re-priced yet, floating might be a good idea, especially if you are outside of the 15 day locking window.