Home loan borrowing costs improved slightly today, though Best-Execution mortgage
rates were unchanged. This extends a rate-watcher friendly trend in the primary mortgage
market. Here is a chart illustrating the recent behavior of
consumer borrowing costs.
In stark contrast to yesterday’s volatility, today was a sideways session. In fact, the secondary mortgage market really
didn’t rally enough to justify improved rate sheets. Instead, the improvements were due to yesterday’s rally, which was not entirely passed
along in rate sheets due to market volatility.
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% 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 individual scenario.
PREVIOUS GUIDANCE: We don’t know how long this rally will last
but the manner in which it’s progressing is among the more aggressive
eventualities we foresaw when upgrading our “lock/float”
outlook. If you’ve been floating since we first reintroduced it as an
option just over a week ago, you’ve saved enough money that it makes good sense
to lock your rate and move on. One of the key reasons for that: 4.875%
Best-Execution will be hard to break and rates are basically back at their
best levels since January with the exception of a short period in the middle of
March (which benefitted from a flight to safety rally fueled by crisis in
Japan). We’ll keep the door open for inclined floaters until loan pricing
begins to worsen. Those who can’t afford to pay higher closing costs than
their current quotes should always lock. At least right now, you can do
so knowing you’ve locked at some of the most aggressive rates of the year.
CURRENT GUIDANCE: As long as bond markets continue to
demonstrate the general level of strength that has
characterized recent trading, the door continues to stay open for
floaters.Same guidance as above.
THE WEEK AHEAD: ECON CALENDAR
MORE PERSPECTIVE ON THE CURRENT BARRIER IN LOAN PRICING
What MUST be considered BEFORE one thinks about capitalizing on a rates
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 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 intense fiscal frisking that comes along with the underwriting