Mortgage Rates: Thin Margins Starting to Stack Up

Interest Rates

From where you sit
there appears to be little volatility in mortgage rates. Today was the FIFTH
consecutive session where loan pricing either remained the same or worsened
by a thin margin. We’ve been stuck in a “directional drift”. Economic data and headline news events have done very little to motivate investors.  Many market players seem to be waiting on the sidelines in preparation for their next move. All this makes it hard to communicate a sense of urgency but ….

Those thin margins are starting to stack up. We’re drifting in the wrong direction!

CURRENT MARKET: The “Best Execution” conventional 30-year
fixed mortgage rate is 4.875% after falling to 4.75% briefly last Wednesday
(not universally, but in some cases).  For those looking to permanently
buy down their rate to 4.75%, this quote carries higher closing costs. The upfront fee to permanently
buy down your rate  to 4.75% is not worth it to every applicant, we
would generally only advise the permanent floatdown if you plan to keep your
new mortgage outstanding for longer than the next 10 years.  Ask your loan
officer to run a breakeven analysis on any origination points they might
require to cover permanent float down fees. On FHA/VA 30 year fixed “Best
Execution” is back to 4.75%. 15 year fixed conventional loans are best
priced at 4.125%. Five year ARMS are best priced at 3.50%, but there is much
more stratification in this sector with higher or lower rates making equally as
much sense depending on the lender and on the amount of time you intend to keep
the loan.

PREVIOUS GUIDANCE: No change to our recent stance that favors
locking for short term/sensitive outlooks and allows for longer term/less
urgent outlooks to wait for an additional recovery in mortgage rates. Thursday
should be a busier session than Wednesday as it contains even more economic
data.  Once again, the same link is in order: READ MORE: Event Exhaustion Leaves Bond Market Waiting for

CURRENT GUIDANCE:  No change to our recent stance that favors
locking for short term/sensitive outlooks and allows for longer term/less
urgent outlooks to wait for an additional recovery in mortgage rates. Tomorrow
should be a busier session than today as it contains even more economic data.
The bond market that indirectly affects mortgage rates moved to the edge
of its recent range today, meaning it is now closer to a shift higher in interest rates. We don’t want to freak anyone out because Best-Ex mortgage rates have some cushion to work with,
but we do caution, if you are being quoted a below “CURRENT MARKET”
mortgage rate…you are in danger of losing that quote if this
“directional drift” heads much further in the wrong direction. Our concerns are technical in nature.

“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 buydown 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
intense fiscal frisking that comes along with the underwriting process.

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.

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