Mortgage Rates: Seeking Confirmation

Interest Rates

Yesterday we witnessed the second stage of a potentially significant shift lower in
home loan borrowing costs. While these developments were encouraging, short-term reversals remained a constant threat. Today we were reminded of those short-term threats as investors took interest rate profits ahead of tomorrow’s “high-risk” event: The Employment Situation
Report. As a result bond prices fell and benchmark interest rates rose, pushing consumer borrowing costs marginally higher. Fortunately loan pricing didn’t deteriorate enough to warrant a shift higher in Best Execution mortgage rate quotes, we continue to hover near 6-month lows.

Execution” conventional 30-year fixed mortgage rate is 4.50%.  In some cases, 4.375% can make
sense, but will involve increased closing costs in the form of an origination fee.  This 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”  is 4.25%. 
15 year fixed conventional loans are  best priced at 3.75%. Five
year ARMs are best priced at 3.125% 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:  The tone has been generally positive for
mortgage rates since April 11th.  We continue to entertain
it could generally stay that way for even longer, clearly justifying
term floating strategies.  However, further positive progress can be
and short term corrections are to be expected.  That means borrowers who
are working on a shorter lock/float timeline should remain defensive of
lower “Best Execution” Mortgage Rate quotes. Your main goal is to
protect a lower rate offer from short-term market fluctuations,
especially with the high risk event on the
horizon in the form of this Friday’s Employment Situation Report.  This
the sort of report than can either confirm the recent break lower in
costs, or send them right back to other side of the fence.

seem like it’s time to consider “The Wall” as being completely destroyed
this point. Yes, “The Wall” is indeed teetering in its most precarious
position this year.  Borrowing costs are
certainly low enough to justify that, but the most important
confirmation can
only be granted by tomorrow’s high-risk event: The Employment Situation
.  If that data confirms the slower than expected economic recovery message
that has fueled the two-month bond market rally, new improvements will
much less tenuous.  We’d remain defensive
even as rates progress lower, preferring the “sure thing” of the best
rates of
the year today versus the risk of losing them tomorrow.  That assumes
either that your time frame is
limited or that rates won’t recover from any set-backs on the horizon. 
Longer term and more flexible scenarios are
still justified in floating.

 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 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.

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