Mortgage Rates: Illustrating the Wall

Interest Rates

Home loan borrowing costs continue to hover near seven month lows.
Continued improvements have however been hard to come by since the
recent rally hit a wall. We’ve entered a period of stagnation.

Sideways behavior is apparent in the chart below of Consumer Rate
Quotes. If the line is moving up, origination costs are rising for the
particular note rate offer.  If the line is moving down, costs are
getting cheaper.

The chart above compares the average origination costs
(as a percentage of loan amount) for several available mortgage note
rates as quoted by the five major lenders.
Each line represents a different 30 year fixed mortgage note rate. 
The numbers on the right vertical axis are the origination closing costs, as a
percentage of your loan amount, that a borrower would be required to pay in
order to close on that note rate. If the note rate graph line is below the
0.00% marker, the consumer may potentially receive closing cost help from their
lender in the form of a lender credits. If the note rate line is above the
0.00% marker, the consumer should expect to pay additional points at the
closing table to cover permanent buydown costs and origination fees. PLEASE SEE

CURRENT MARKET: The “Best Execution” conventional 30-year
fixed mortgage rate is still in a state of flux between 4.75% and
4.625%. Some lenders
are already quoting C30 loans at 4.625% with no origination points.  If
you are looking to move down from there or merely between the two,
you’ll be
assessing the trade-offs between higher closing costs and lower monthly
payments.  This could be worth it to applicants who plan to keep their
mortgage outstanding for long enough to breakeven on the extra upfront
costs.  On FHA/VA 30 year fixed “Best Execution” is also a
moving target roughly centered on 4.375% with adjacent rates (even
4.25%) being logical in some
scenarios. 4.50% is a no-brainer for most FHA 30YR fixed scenarios. 15
year fixed conventional loans are best priced at 3.875%. Five year ARMs
best priced at 3.25% but the ARM market is more stratified and there is
variation in what will be “Best-Execution” depending on your
individual scenario. 

PREVIOUS GUIDANCE:  We really didn’t get much by way of new
guidance today, having landed very much within the boundaries we travelled this
week.  One thing is clear though, underlying bond markets have yet to break
through strong technical resistance, and until/unless they do, we remain wary
of a potential short term pull-back.  Certainly, if you are being quoted a
below “Current Market” Best-Ex rate, your goal should be keeping
it.  Floating remains an option for longer term rate-watchers and intermediate-term scenarios.

previous guidance was timely and remains applicable today.  Floating is
still an option for borrowers who have a longer lock/float timeline as
well intermediate-term scenarios. Borrowers with a 10-15 day lock/float
timeline should be more defensive of recent rate improvements,
especially if lenders are quoting the lower of our “Current
Market” Best-Ex pairs. Although it wouldn’t take a big move in the
market to see Best-Ex quotes fall another
0.125%, that move has failed to occur in the past 10 days. The rally has
gone sideways, that skews risk
unfavorably in the short term. This will continue to be the case until “The Wall” comes tumbling down or proves unbreakable.

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

   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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