Mortgage Rates Seen Below 4.00%. Lock or Float???

Loan pricing improved again today. This is the first time that par 30-year fixed mortgage rates have been offered on a broad spectrum below 4.00%.

Par 30 year fixed mortgage rates have fallen into the 4.00% to 4.375% range for well-qualified consumers. More lenders than ever are however willing to offer mortgage rates as low as 3.75% as long as the borrower is willing to pay points. The best par 15 year mortgage rates are in a range between 3.375% and 3.500%. 5 year ARMs are being quoted around 3.00%.  Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates to borrowers who have perfect credit profiles and enough equity in their home to qualify for a refinance. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan a risky investment.

Tomorrow is a big day. The most influential economic report of the month will be released: The Employment Situation Report

Ahead of this release, mortgage rates have rallied for five straight days. These improvements have been a result of investors anticipating the announcement of another Federal Reserve Quantitative Easing program sometime before January. Many market participants believe this program will be highly supportive of a low mortgage rate environment and possibly lead borrowing costs even lower than they are right now.  This assumption is contingent on the notion that new economic data will continue to reflect a slower than expected recovery. This makes the Employment Situation Report, which is normally the most influential economic release of the month, even more influential tomorrow.

In terms of the market's expected reaction ...if the data is better than forecast, we should expect to see a knee jerk selloff in the bond market, which would push closing costs higher but probably wouldn't force lenders to stop offering quotes below 4.25%. If the data is worse than expected, bond yields will move lower and consumer borrowing costs would improve a few more bps...the caveat to those improvements: lenders would be slow to pass along cheaper costs. It is very unlikely that the Employment Situation Report will be so strong that it leads mortgages rates on a long term losing streak. 

This is how I would play it...

If you are being quoted a base rate below 4.125%, I think you're Gary Busey crazy not to lock it up. If your base rate is above 4.125%, there is room for you to float without seeing a big change in your borrowing costs, regardless of data. Ugh. I don't like trying to pick sides for an overnight decision. It's a guessing game!

HERE is the outlook for the Employment Situation Report.

Are you locking or floating?