Home loan borrowing costs rose about as much as they could yesterday
without having it negatively impact CURRENT MARKET Best Execution
Mortgage Rate quotes.
Unfortunately borrowing costs rose further today. And the levee burst….
CURRENT MARKET Best Execution Mortgage Rates have risen. That means if you were being quoted a
CURRENT MARKET “Best Execution” note rate yesterday, you will not be able to lock at the same Best
Execution note rate today.
The abrupt spike in costs can be attributed to volatility in the secondary market…..
CURRENT MARKET*: The “Best Execution” conventional 30-year
fixed mortgage rate has risen to 4.625%. Some lenders may still be willing to quote 4.50% but those offers are no longer widespread. Lenders quoting 4.375% are now charging at least a point. These costs could be worth it to applicants who plan
to keep their new mortgage outstanding for long enough to breakeven on the
extra upfront costs. On FHA/VA 30 year fixed “Best
Execution” has jumped from 4.25% to 4.375% and potentially even 4.50% at some lenders (GNI pricing = better). 15 year fixed conventional loans are now best
priced at 3.875%. Five year ARMs are best priced at 3.25% 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: As volatility continues in the secondary
market, we remind rate watchers that lenders are known to price loans from a
defensive stance when the broader bond market is in limbo. It might seem safer
to float when lenders are defensive by default, especially if you’re able
to act quickly and are somewhat flexible with respect to the risk of slightly
higher closing costs, but floating is really best reserved for those operating
on a longer-term timeline. This creates a buffer to allow for corrections
when/if the market moves in an unfavorable direction. While a few sessions of
continued loan pricing rallies could lead to a lower overall note rate offer,
we’ve been here before and failed to see investors
commit to a sustained rally in the bond market.
CURRENT GUIDANCE: After failing on repeated occasions to extend the two-month rally, mortgage rates are acting exhausted. That means the path of least resistance is up for interest rates, at least in the short-term. That puts us in a defensive posture for the next 10 to 20 days. We are not ready to change our outlook for lower rates by the end of the summer though. This corrective behavior happened last year too, which supports our long standing view that “history is repeating itself” in the bond market. BEWARE: This is guidance is speculative in nature. We don’t have a crystal ball, we can’t predict the future, we can only share our outlook. Making the following considerations extra important……………………
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
SEE A CHART OF NEW YTD RATE LOWS
“Best Execution” is the most cost 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.