Mortgage Rates: As Good As It Gets?

Interest Rates

Home loan borrowing costs ended the week near their most aggressive levels of the year.

The chart below illustrates how borrowing costs have behaved with
respect to various mortgage note rates. 
If the line is moving up, the closing costs associated with that note
rate are rising, if the line is moving down,  the closing costs associated with that note
rate are falling. Notice the line has been moving lower since early April. Right now borrowing costs are about as aggressive as they’ve been in 2011.

Best-Execution mortgage rates could be considered “in the
process of” a shift lower. This doesn’t mean all lenders are willing to
quote lower Best Execution mortgage rates, but a few are offering “below
current market” deals right now because the primary mortgage market is

CURRENT MARKET: The “Best Execution” conventional 30-year
fixed mortgage rate is 4.875%. If you are looking to move down to 4.75%, this
offer carries higher closing costs but could be worth it to applicants who plan
on keeping their new mortgage outstanding for longer than the next 10
years.  Some lenders are pricing loans more aggressively
because competition is tight, so scattered sightings of 4.75% BestEx are
possible, but not on a wide-spread basis. Ask your loan officer to run a
break-even analysis on any origination points they might require to cover
permanent float down fees. On FHA/VA 30 year fixed “Best Execution”
is still 4.75%.  15 year fixed conventional loans are best priced at
4.125%. Five year ARMs are still seen best priced at 3.50% but the ARM market is
more stratified and there is more variation in what will be
“Best-Execution” depending on your individual scenario. 

PREVIOUS GUIDANCE: Before the Fed Announcement we said “if you
have the flexibility to wait until Thursday morning to see how rates fared,
that’s allowable if not advisable due to limited possible gains.” 
The gains indeed turned out to be limited. But perhaps we saw the early signs
of a new, lower Best-Ex rate offering today. Thing is, we’re going to be
bouncing up and down a bit in the weeks between now and the end of June, so the
only way to approach is either automatically favor locking to avoid risk, or
wait around until you think rates confirm a bottom. And if you think they’ve
already bottom, today, rates are at or below their best levels in recent months. 
If you floated through the high-risk FOMC event, you’ve saved some money. If
you think you can save more, better read the rules below…

chart should go a long way in helping short term floaters decide whether or not
rates have confirmed a bottom.  Without
saying anything about the longer term possibilities, the short term outlook
becomes much more lock-biased when borrowing costs are at or near their lowest
levels and with a large gap lower to the next range of historical costs.  As good as it gets?  There’s no way to know, but in terms of
probability, seeing significant improvements in closing costs or rates is
unlikely in the upcoming week.  But the
bottom line is really this: a few weeks ago, after the bond market began
bouncing back from its worst recent levels, we shifted our guidance to allow
for a bit more risk.  Today is the
opposite, we’re decreasing our level of risk tolerance at these levels, but
with the caveat that we continue entertain the possibility of further
improvements in the longer run. If
you think you can save more, better read the rules below…

What MUST be considered BEFORE one thinks about capitalizing on a rates

   1. WHAT DO YOU NEED? Rates might not rally as much as you
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough




*”Best Execution” is the most efficient combination of note
rate offered and points paid at closing. This note rate is determined based on
the time it takes to recover the points you paid at closing (discount) vs. the
monthly savings of permanently buying down your mortgage rate by 0.125%. 
When deciding on whether or not to pay points, the borrower must have an idea
of how long they intend to keep their mortgage. For more info, ask you
originator to explain the findings of their “breakeven analysis” on
your permanent rate buy down costs.

Important Mortgage Rate Disclaimer
: The “Best Execution” loan
pricing quotes shared above are generally seen as the more aggressive side of
the primary mortgage market. Loan originators will only be able to offer these
rates on conforming loan amounts to very well-qualified borrowers who have a
middle FICO score over 740 and enough equity in their home to qualify for a
refinance or a large enough savings to cover their down payment and closing
costs. If the terms of your loan trigger any risk-based loan level pricing
adjustments (LLPAs), your rate quote will be higher. If you do not fall into
the “perfect borrower” category, make sure you ask your loan
originator for an explanation of the characteristics that make your loan more
expensive. “No point” loan doesn’t mean “no cost” loan. The
best 30 year fixed conventional/FHA/VA mortgage rates still include closing
costs such as: third party fees + title charges + transfer and recording. Don’t
forget the fiscal frisking that comes along with the underwriting process.

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