To Float or Lock

Reports from fellow mortgage professionals indicate lender rate sheet are slightly better but mostly unchanged from yesterday afternoon. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. You may elect to pay less in upfront fees, but you will have to accept a higher interest rate.

When considering the LOCK vs FLOAT decision, I think of it as so: WE ARE PLAYING CHESS, NOT CHECKERS


My lock bias is based on the big picture outlook. Mortgage rates are currently priced near very aggressive levels. Barring a major shift in sentiment that drives benchmark Treasury yields lower, mortgage rates should move higher in months to come. While floating day to day can result in small reductions in borrowing costs, the risk of rates rising is large. This is long term guidance.

If you floated overnight, you have picked up small improvements to your borrowing costs. MBS prices continue to rally today and some lenders may reprice for the better. If they do, I would be locking this afternoon, especially if you are within 30 days of closing. As I said earlier, lenders are not lowering rates under 4.75%. This has held true all month! While it is very tempting to continue floating over the weekend, especially with stocks looking very weak, I think my point regarding a "bottoming out" in mortgage rates will hold true, even if the bond market continues to rally.

We have been here before, we have seen stocks sell off only to rebound shortly thereafter. While there will be opportunities to float in the short run (overnight), until we see proof of a fundamental shift in economic outlooks, we favor locking.