Mortgage Rates: Waiting for Guidance

Interest Rates

After spending the first four months of 2011 in a tight range, the primary
mortgage market is now in the midst of a potentially significant shift lower in
home loan borrowing costs.

There was no economic data on the schedule today and trading was quiet,
leaving borrowing costs very close to Friday’s levels.  This can be seen in the chart below which
compares origination costs as a percentage of your loan amount for several
available mortgage note rates.  If the line is moving up, costs are
getting higher for that particular rate, and vice-versa

As illustrated in the chart below, consumer borrowing costs have been on a winning

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 has fallen from 4.875% to 4.75%.  If you are looking
to move down from there, you’ll be assessing the trade-offs between higher
closing costs and lower monthly payments.  This could be worth it to
applicants who plan on keeping their new mortgage outstanding for long enough
to break even on the extra costs.  More lenders are
pricing conventional loans aggressively because competition is so tight in the
primary mortgage market.  On FHA/VA 30 year fixed “Best
Execution” has fallen from 4.75% to 4.50%
.  15 year fixed
conventional loans are best priced at 4.000%. Five year ARMs are best priced at
3.375% but the ARM market is more stratified and there is more variation in
what will be “Best-Execution” depending on your individual

PREVIOUS GUIDANCE:  Yet another step forward was taken today in
the shift toward lower mortgage rates.  Bond markets are demonstrating
enough resilience that those inclined to float for longer term potential gains
are still allowed to do so. Short termers must deal with the constant risks
associated with a pull-back from recent rate improvements.  With the
recent drop in Best-Execution rates, lender offerings are the most aggressiv
they’ve ben since early December.  If you’re being offered a below
“current market” quote, your main mission should be keeping it! 
If you are interested in learning more about the technical factors associated
with a potential interest rates rally, we recommend reading this post as it provides pertinent perspectives and
explains the situation in Plain and Simple terms.  As always, if you want
to benefit from another leg lower in Best Execution mortgage rates, you must
read the rules……

week’s round of economic data and the Treasury Auction cycle begin
tomorrow.  Whereas today was relatively
uneventful, tomorrow brings our next batch of “risk.”  We’re on the edge of our seats in the
expectation of short term pull back from recent strength, meaning that shorter
term/more sensitive scenarios are at the most risk of losing what are currently
great offerings.  If the economic reports
are grim enough and demand is high enough for auctions, there’s a chance that
we wouldn’t see a correction, but it doesn’t carry the kind of odds you’d want
to bet on.  As far as medium/longer term
outlooks, as long as you know how much worse you’d let your quote get before
locking at a loss, the possibilities of future improvements are valid enough
that floating can make sense.

 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

Jobs Data Preview: Bonds Seeking Confirmation


*”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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