I got to thinking lately that floating a mortgage rate might not offer much upside at the moment.
Obviously it’s situational and depends on a particular loan scenario, timing, etc., but with mortgage rates back near 3.5 year lows, how much lower can they can go?
With oil prices still hovering near $100 per barrel, it’s pretty clear there’s going to be an uptick in inflation, even if it’s “transitory.”
Bonds don’t like inflation and nor do mortgage rates, which explains why mortgage rates increased a lot in March.
But they’ve also come down a fair bit in April, so further improvement might be hard to come by.
Mortgage Rates Have Had a Great April Despite a Ton of Uncertainty
It’s the million-dollar question in the mortgage industry. Should I lock or float my mortgage rate?
While there is some logic and calculated risk you can apply, such as floating when you’re a long way out from a closing date, it’s still always a gamble.
Simply put, nobody knows what will happen with mortgage rates.
Case in point, rates hit a 3.5-year low at the end of February, then we saw a huge spike in rates in March thanks to an unanticipated strike on Iran.
At the time, I’m sure a lot of people were floating their rates and hoping for even lower ones.
There were probably a good handful of existing homeowners waiting to refinance their mortgage because they expected even better.
Then bam, rates did an about face and surged back toward 7%. Thankfully they reversed course again in April, but they’re still about a half-point above those February lows.
And given oil remains near $100 per barrel, up from about $70 pre-war, it makes sense that interest rates remain elevated.
Let’s not forget the Strait of Hormuz is also effectively closed and blockaded, so the transport of oil and natural gas has been choked off.
Each day this continues, the worse it gets, even if the smart people in the room think it’s going to be resolved fairly quickly.
That means mortgage rates will likely remain elevated as well, or at the least above those really low levels seen in late February.
Had rates been “high” prior to the conflict, one could argue that that they could come down quite a bit more after they moved even higher.
But since they were priced at that best levels since 2022 prior to the strike, it was probably much easier to justify an increase and a lasting one.
Put another way, mortgage rates are pretty low right now if you zoom out, and especially decent given what’s going on at the moment.
What Are Some Arguments for Floating Mortgage Rates Right Now?
As noted, mortgage rates are already pretty attractive having come down quite a bit this month.
A low-6% 30-year fixed rate is unequivocally good relative to what we’ve seen the past few years. Remember the 7-8% rates?
At the same time, they remain about a half-point above those late-February levels, so one could argue there’s still room for improvement.
And if the trend is our friend again, perhaps mortgage rates continue to drift even lower and closer to those levels.
That’s if you believe the situation in the Middle East will be resolved and things will get back on track.
It’s basically what you’re counting on here at the moment because there’s not much else in the way of major economic news being released anytime soon.
Sure, there are some reports like retail sales, pending home sales, and PMI data next week, but nothing too notable.
It’s not until May 8th that we get the next jobs report, which is always the biggest mover of mortgage rates.
Remember, for the Fed and bond traders it’s labor over inflation, so that’s what can really move mortgage rates. And it’s not for another 3+ weeks.
Even then, it might not even prove favorable for mortgage rates…
In the meantime, we could see escalations in the ongoing conflict that lead to higher rates, making floating risky business.
So you kind of wonder how much lower rates could get here. Sure, a stellar peace deal could certainly help, but even then, how much?
Does it get rates down to 6.25% or 6.125%? Another .125% or .25% lower?
You kind of wonder how much room there is for mortgage rates to fall right now. And if it’s worth finding out.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.