Temporary Factors Help Mortgage Rates... Temporarily

By: Matthew Graham •

Mortgage rates caught some small semblance of a break today.  If it's not apparent based on that assessment in conjunction with the headline, the improvements certainly left something to be desired, even though that's to be expected, given the circumstances. 

Here's what I mean by that:

Rates are based on the bond market.  Trading levels in the bond market are back in line with (or slightly better than) Tuesday's levels.  But mortgage rates are still higher than those seen on Tuesday.  It's really that simple.

Why is it to be expected?

Mortgage rates aren't created automatically based on the bond market.  The bond market is merely the primary input.  Lenders use bond prices/levels as a baseline for determining rates.  If the market has been more volatile, lenders are quicker to raise rates and slower to bring them back down.  This is especially true when rates have risen quickly to long-term highs, as they have this week.  Moreover, today's bond market improvement was arguably driven by temporary factors relating to European politics and investor strategies at home.

 See Rates from Lenders in Your Area

Bottom line: it will take a much bigger, much more sustained move in bond markets for lenders to make meaningful changes to mortgage rates.  Until then, it makes sense to remain defensive in terms of locking vs floating.


Loan Originator Perspective

Today's rally is akin to a drop of water in the desert, but we'll take it and lock. - Al Hensling


Today's Most Prevalent Rates

  • 30YR FIXED - 4.75-4.875%
  • FHA/VA - 4.5%
  • 15 YEAR FIXED - 4.25%
  • 5 YEAR ARMS -  3.75-4.25% depending on the lender


Ongoing Lock/Float Considerations 

  • Rates have been moving higher in a serious way due to headwinds that cannot be quickly defeated.  These include the Fed's increasingly restrictive monetary policy outlook, the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation.

  • While we may see periodic corrections to the broader trend toward higher rates, it's safer to assume that broader trend can and will continue.  Until that changes, it makes much more sense to remain heavily-biased toward locking as opposed to floating.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.