Another Day Without Any Major Mortgage Rate Movement, So Let's Talk Rate Index Methodology

I like to write at least a small amount every day to recap mortgage rate movement.  After all, they change every day by at least some small amount and on the rare occasions where they're perfectly flat, there's usually something interesting to consider on the horizon.

This particular week is making it tough to stick to that routine.  Rates have been effectively unchanged on 5 out of the past 5 business days with the average top tier 30yr fixed rate holding in a range of 6.64 to 6.66%. 

Notably, we received some feedback that called those rates into question over the past 5 days.  It wasn't widespread, but it was vitriolic at times.  In cases where people weren't interested in objectivity, or were unwilling to accept that their own rates were not coming down as quickly as the broader market, I could only advise them to wait and see where Freddie Mac's weekly survey came out (spoiler alert: 6.67%).

What does that rate mean though?  We get that question a lot.  A top tier, index rate is just that: top tier.  There's nothing above it in terms of qualifications.  It is the rate with the lowest amount of penalization for things like loan-to-value ratio or credit score (or property type, or occupancy, etc.). 

It is NOT the lowest rate offered.  In our case, it's the average offering in the competitive range of lenders.  If our index is at 6.66% as it is today, there will be multiple lenders offering 6.5%, and a few down in the 6.25-6.375% range.  There will also be lenders at 6.875-7.125%.  On scenarios with less than 20% down or credit scores under 780 (or other details that result in pricing "hits"), you would also expect to see a higher rate than seen in the big picture indices.

The fact is that there is a mean/median/mode for mortgage rate offerings across multiple lenders.  It's usually the same in all 3 cases.  And it only makes sense to track these things in terms of top tier scenarios because everything else constitutes a subjective modification of a baseline.