The trend of increasing home loan borrowing costs that began last Thursday continued
today. Best-Execution mortgage rates are on the verge of shifting higher as a result.
We’d still describe this current weakness as the longer term rates rally taking a
“breather” after two months of strong improvements. Perhaps it’s more appropriate to say that the
term “breather” still applies given the periodic pull-backs normally seen
during extended rallies. Although recent losses don’t necessarily break the longer term positive trends, it’s certainly enough to make one question those positive trends.
CURRENT MARKET: The “Best
Execution” conventional 30-year fixed mortgage rate is still 4.50%, but only barely. Some lenders may be quoting 4.50% with increased closing
costs in the form of origination fees. 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: With “The
Wall” now torn down a path has been paved for mortgage rates to
continue on the path toward more improvements. An extended rally will not come
without setbacks though. Short-term corrections are possible. That means
borrowers working on a shorter lock/float timeline should remain defensive of
their current quotes. While the rally has indeed stalled, we still feel that
intermediate to longer-term scenarios are justified in floating. But we
caution, with the politics of money and banking taking center stage into the
summer months, your main goal is to protect new, lower rate quotes from
unexpected market fluctuations. Stay-tuned for further developments….
CURRENT GUIDANCE: No sooner has the wall been torn down
than the big bad financial markets are trying to scare lenders into building it
back up. Certainly, anything can happen,
and while it’s possible that rates move right back to the higher levels seen before “The Wall” came down, the current level of weakness is consistent with past examples of the “short-term
corrections” we’ve warned against. The
past few days provide an example of how quickly these corrections can happen
and hopefully illustrate why we normally urge defensive stances even as rates
improve. There’s an exceptional amount
of risk involved in banking on continuation of the longer term rally, but
recent weakness in rates hasn’t ruled it out.
Still, short-term scenarios beware.
It’s not uncommon for these “breathers” to last a few weeks.
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 ot 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.