Home loan borrowing costs were
roughly unchanged today after reprices for the better erased morning loan pricing weakness.
Whereas yesterday’s improvements
constituted a major counter-attack to recent spike in home loan borrowing costs
(Check out this chart: VISUALIZING THE SPIKE), costs were sideways today. Yesterday’s strength was encouraging but could still prove to be a minor
correction within the broader bearish trend. It could also turn out to be a legitimate reversal leading conventional
30-year fixed Best-Execution rates back to their recent perch at 4.875%. We’re in wait and see mode….
CURRENT MARKET: The “Best Execution” conventional 30-year fixed
mortgage rate is 5.00% after spending three days at 5.125%.
Some lenders may offer pricing that makes 4.875% an attractive option, but that is a best-case
scenario. 5.00% is a much more common Best Execution quote. In the
case of 4.875%, this offer carries higher closing costs but could be worth it
to applicants who plan on keeping their new mortgage outstanding for longer than
the next 5 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 still 4.75%. 15 year
fixed conventional loans are now best priced at 4.25%. Five year ARMS are still
stratified and there is more variation in what will be
“Best-Execution” depending on your individual scenario.
VERY IMPORTANT CAVEAT: Mortgage rates are being quoted in a wider range right now
due to recent regulatory changes in Loan Officer Compensation policies. Because
of this, the Best-Execution mortgage rate can vary greatly from
lender-to-lender. The quotes we have listed above are on the more aggressive
side of the primary mortgage market.
PREVIOUS GUIDANCE: The glimmer of opportunity for recent mortgage rates
trends to moderate is still alive after the first of 4 days that will likely
decide its fate. This actually complicates matters because it provides
potential enticement for those inclined to float. Attempting to take
advantage of this mini-recovery is highly speculative and highly risky.
While we’d continue to advise anyone who cannot afford the risk of a higher
rate toward locking, those with flexibility got enough of an improvement in
rates today that IF things don’t keep improving, you’d likely have a chance to
lock in with rates “only” as bad as they were yesterday or
CURRENT GUIDANCE: The level of risk involved in attempting to take advantage
of the current “mini-recovery” was made apparent today as rates were worse this
morning, we lucked out when pricing rallied back this afternoon. That being said, the “glimmer of opportunity”
we mentioned on Monday got some firm support with the afternoon recovery rally.
Betting on it however, remains highly speculative. We’ll need economic events to transpire
favorably for a few more days before we’d get any more optimistic about further improvements in home loan borrowing costs (It’s good day to re-read previous guidance… still applies 100%)
What MUST be considered BEFORE one
thinks about capitalizing on a rates recovery?
1. WHAT DO YOU NEED? Rates might not recover as much as you
2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you
3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in
the bond market?
“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
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