Mortgage Rates: Setback Survived. For Now…

Interest Rates

After experiencing a scary setback earlier in the week, home loan borrowing costs improved again today as a “flight to safety” continued to benefit bond yields.

A “flight to safety” happens when investors are nervous about owning
risky assets like stocks, but do not want to miss out on earning a
return on their funds, so they allocate their money into risk-free
government guaranteed U.S Treasury debt to provide a safe-haven and an
investment return. As benchmark Treasury yields fall on “flight to
safety” buyer demand, prices of mortgage-backed securities move higher
in unison. This allows lenders to reprice their rate sheets for the
better and gives originators an opportunity to offer fence-sitting
borrowers lower mortgage rates or more competitive closing costs.

Loan pricing is not as aggressive as it was on June 3rd (best day to lock all year so far), but we’re getting closer to those levels again.

Execution” conventional 30-year fixed mortgage rate is 4.50%. Some lenders may be quoting 4.50% with increased closing
costs in the form of origination fees. Some lenders may also be quoting 4.375%, but those offers will definitely carry additional closing costs.  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”  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:  Today’s recovery rally is encouraging from a
big picture perspective as it keeps the door open for our longer-term
bullish mortgage rate bias to extend deeper into the summer
months. Still, short-term scenarios should take caution. The
past few days provide a perfect example of how quickly unfriendly
corrections can occur in the mortgage market. Hopefully these back-ups
illustrate why we normally urge defensive short-term stances, even as
improve.  We may have dodged a bullet today, but we’re not out of the
woods yet. More bouts of volatility are very possible.

CURRENT GUIDANCE:  There’s a weird feeling in the air. Stocks are teetering on a major breakdown and bonds smell fear. If stocks fail to mount a recovery rally in the near future, we could be looking at another leg lower in Best Execution mortgage rates. While this “feeling” ties together well with our long-term outlook, it’s still speculative in nature. We say that because the timing of such a move is “at any moment”. And until it happens, stocks are gonna put up a fight, as proven by a modest recovery bounce today, which bonds mostly ignored. This “scratching and clawing” in equities implies the potential for further loan pricing volatility remains high. Remember, it was only two days ago when Best Execution Mortgage Rates were teetering on a shift higher because stocks put together a decent intraday rally effort. We may have dodged a bullet yesterday, but we’re not out of the
woods yet. The
past few days provide a perfect example of how quickly unfriendly
corrections can occur in the mortgage market. That makes the following guidance 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


“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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