Be careful of looking the gift horse in the mouth.
Last week saw multiple broker-channel lenders get more competitive on pricing. That pushed fixed rates down to fresh record lows, inspiring some brokers to advertise 5-year rates at 2.94-2.99% or less.
Much of that discounting was thanks to lower bond yields (which generally lead fixed rates). You can see the recent downtrend in yields in the chart below.
In all of the emotion of plunging rates, however, it’s easy to forget that they can reverse higher just as fast as they drop.
On Friday, the 5-year government yield popped 12 basis points—the biggest one-day increase in almost a year. When that sort of thing happens near lows, after a long downtrend and a period of sideways trading, it often marks a noteworthy change in market sentiment.
As bond traders suddenly reverse their positions, it can halt the drop in yields (and fixed mortgage rates) for a few weeks, and sometimes much longer.
For that reason, those waiting for lower rates before applying for a mortgage may be taking a bit more risk than normal. It’s kind of like passing a gas station on empty to save a few more cents a litre. You may find another station, but if you’re wrong, it won’t be much fun pushing.
If yields bounce much higher (e.g., into the 1.40-1.50% range), deep-discount lenders will waste no time taking rates back up a few notches.
So if you need a 5-year fixed rate, it’s as good a time as any to take the “gift” lenders are giving. This is certainly not to say that rates won’t go lower. (Global and domestic risks could keep yields depressed for a while.) But don’t be afraid that applying now will make you miss the boat on a better deal. When it comes to rates, it’s almost impossible to pick the bottom.
Rob McLister, CMT
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