August 26th Best Mortgage Interest Rates and Lock Recommendation

Here is today's look at best mortgage rates, (which do not include discount points, origination points, or loan level risk based price adjustments) provided by Mortgage News Daily, Freddie Mac, and other sources. Note that Freddie Mac's AVERAGE rates are typically higher than BEST rates, because average rates include surcharges for risks associated with property types, down payments, and credit scores. To be eligible for BEST rates, borrowers need spotless credit (740 score or better), a sizable down payment (20-25%) or equity amount, and stable, adequate, and documentable income. In addition, the property must be located in a healthy (not declining) market and must be conventionally built.

July's Durable Goods Orders report showed a 4.9% increase in orders for big-ticket items--much bigger than the expected 3.2%. This is not good for bonds and mortgage-backed securities (MBS) because robust manufacturing bolsters the theory that the economy is recovering sooner.

July's New Home Sales data also greatly exceeded forecasts with a 9.6% increase in sales of newly constructed homes. This is also bad news for mortgage rates because a strengthening housing sector is another indication of economic recovery and potentially inflationary.

Then, there's today's 5-year Treasury Note auction. Demand for these notes could push mortgage rates and we could see rate revisions before the day is out.

As I stated last week, I am sticking with the assertion that locking is the best strategy right now. Today, mortgage interest rates are as low as they have been during recent months. With applications continuing to roll in (most likely in response to the first time home buyer tax break) there isn't much reason for lenders to expand their pipelines by throwing out below market mortgage rates. Of course, rates could move lower if demand at today's Treasury auction proves higher than expected, but there is a lot more room for rates to increase than to drop. Ans as I've said before, markets are fear-driven and rates will always be yanked up more quickly in response to changes than they will be lowered. Finally, every time rates have made it down this far, the pricing doesn't hold up--in a few days the lowest rates rebound and increase. Therefore:

I would LOCK my mortgage rate if closing within 45 days; otherwise I'd FLOAT my rate. This is only an opinion--what I would do if I were closing a mortgage at this time. Your decision may depend on other factors such as the strength of your loan approval and your tolerance for risk, and must be made with those in mind.

Liz Freeman has more than a decade of mortgage lending experience. She writes about mortgage and finance issues and is a regular contributor to Mortgage News Daily.