Mortgage rates are somewhat higher again today after news out of Europe created market momentum overnight in favor of higher stock prices and higher bond yields.  When bond yields move higher, mortgage rates are generally moving higher as well although today's rates did a fairly good job of holding steady at the prevailing best execution rate of 3.5% for 30yr Fixed Conventional Loans.  

(Read More:What is A Best-Execution Mortgage Rate?)

The overnight news in Europe was an announcement by the highest court in Germany that a key vote would NOT be delayed, and thus will occur tomorrow.  Although the German judicial system may seem miles away from the world of mortgage rates here in the US, this vote is on Europe's new permanent bailout fund and has the potential to be a very important market mover.  It's not that the decision directly affects mortgage rates, but it has a huge bearing on the overall direction of markets.  As the securities that underlie mortgage rates tend to move mostly in concert with similar bond market securities, mortgage rates can definitely be affected.

This is one of the "Big Ticket Events" to which we've been referring for a few weeks now, and along with the Federal Reserve's policy announcement on Thursday, represents a huge dose of uncertainty for interest rates.  The potential volatility ahead is one part of the current consideration "should I lock or float?"  The other ingredients, as we see them, have to do with where rates are historically as well as some specific but highly quantifiable threats.

Historically, rates continue to operate in a range near their all-time lows.  There have maybe been a few days in late July where it could have been argued that rates dipped to a 3.375% best-execution level, but beyond those days, most of the recent movement has simply been adjustments in closing costs (or lender credits) at the 3.5% level. 

As far as the "specific, quantifiable threat," we're speaking about the most recent hike in Fannie Mae and Freddie Mac's Guarantee Fees.  This is something that's happened before and is something we know will continue to happen (read more HERE), but it doesn't make the effects on rate sheets seem like any less of a shock when they arrive.  Lenders have been adjusting their pricing policies more quickly in response to this most recent hike and it has generally been enough to push most scenarios up to the next .125% higher in rate.  In our view, this is a MUCH bigger consideration than trying to time highly uncertain financial markets.  Bottom line, if you can unequivocally confirm that you're working with a lender who has not yet priced in the Guarantee Fee increase, and that your loan is on a timeline that risks being affected by it, we'd certainly favor locking in those scenarios (not to mention making sure your lender has everything they need to get your loan done without the need for a lock extension, because those are getting much more expensive in some cases if they cause the time frame on the file to cross into the higher Guarantee Fee territory).

Long Term Guidance: We'd continue to advocate against trying to "get ahead" of current market movements due to the high degree of uncertainty.  The long-term direction of rates has been down, down, down, for the past year.  At some point, this will turn, and when it does, we highly recommend that you're prepared by drawing your OWN line in the sand as to how much rates would have to rise before you lock at a lost.  That's assuming you don't simply lock as soon as you're able.  For those with lower levels of risk tolerance who would consider movements in cost (despite unchanged interest rates) to be significant, or for those within 15 days of closing, or who are purchasing, this certainly favors locking.  We'd also consider that rates remain very close to all-time lows and uncertainty to all-time highs.  This also favors locking.

Loan Originator Perspectives

Mike Owens, Partner with HorizonFinancial, Inc.

As always I favor locking your rate. Too much can happen that will hurt rates and they can soar quickly at the hint of bond weakness. The new G-fee coming down the pike is also represented in longer duration lock periods. Some lenders will allow extensions to avoid the increased cost where others won't. Others have already built it into pricing and you can tell because they are way off. Pretty soon however, it will be unavoidable.

Today's BEST-EXECUTION Rates 

• 30YR FIXED -  3.5%
  
• FHA/VA - 3.5% (varies more between lenders than conventional 30yr Fixed)
• 15 YEAR FIXED -  2.875-3.00%
• 5 YEAR ARMS -  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations 

• Rates and costs continue to operate near all time best levels
• Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating
• But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn't always mean they're done improving.
• (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).