Home loan borrowing costs improved enough today to say Best-Execution
mortgage rates could be considered “in the process of” a shift lower. This doesn’t mean all lenders are willing to quote lower Best Execution mortgage rates, but a few are offering “below current market” deals right now because the primary mortgage market is highly-competitive.
This would be the
first phase of a broader-based shift lower in Best Execution rates. Encouraging yes. Comforting No.
CURRENT MARKET: The “Best Execution” conventional 30-year
fixed mortgage rate is 4.875%. If you are looking to move down to 4.75%, 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 10
years. Some lenders are beginning to price loans more aggressively
because competition is tight, so scattered sightings of 4.75% BestEx are possible, but
not on a wide-spread basis. Ask your loan officer to run a break-even 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 best priced at 4.25%. Five year ARMs are
still seen best priced at 3.50% but the ARM market is more stratified and there
is more variation in what will be “Best-Execution” depending on your
PREVIOUS GUIDANCE: The FOMC meeting has come and gone with little
change in our outlook. There was a modest downgrade in the Fed’s economic
projections but they anticipate that slowdown to be
“transitory”. As a result the secondary mortgage market
continues to affirm its resistance to breaking through the Best-Execution
barrier at 4.875%. We’re still entertaining possibilities in either
direction, but with the understanding that breaking 4.875% is still just as
difficult as it was the last time rates stagnated there for over a month.
Inclined floaters are advised to keep a very close eye on rate movements,
especially with borrowing costs in a holding pattern near one-month lows.
Bottom Line: today wasn’t enough to get rates unstuck.
CURRENT GUIDANCE: Before
the Fed Announcement we said “if you have the flexibility to wait until
Thursday morning to see how rates fared, that’s allowable if not advisable due
to limited possible gains.” The gains indeed turned out to be limited. But perhaps
we saw the early signs of a new, lower Best-Ex rate offering today. Thing is, we’re
going to be bouncing up and down a bit in the weeks between now and the end of June, so the only way to approach is either automatically favor locking to avoid risk, or wait around until you think rates confirm a bottom. And if you think they’ve already bottom, today, rates
are at or below their best levels in recent months.
If you floated through the high-risk FOMC event, you’ve saved some money. If you think you can save more, better read the rules…
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 decisions?
READ MORE ABOUT THE BARRIER IN BEST EXECUTION
*”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