Mortgage Rates: Cheapest Borrowing Costs in a Month

Although home loan borrowing costs improved slightly today, Best Execution
mortgage rates remain in a holding pattern ahead of tomorrow’s high-risk FOMC Statement (Fed Rate Decision).  It’s
going to take a sustained effort, catalyzed by something like a
bond-market-friendly reaction to tomorrow’s announcement if Best Execution mortgage
rates are to break their current barriers.   We discussed those
barriers in THIS POST.

The nice thing about the current situation is that while tomorrow’s events present “high risk,” they arrive while mortgage rates are near or below their very best levels in months, meaning that there’s no reason to second guess locking if so inclined, yet still enough possibility of improvement for more aggressive or risk-tolerant outlooks.

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: The “holding pattern” continues, and
borrowing costs are nearly as low as they can go without another shift in the
Best-Execution rate.  We’ve talked about why that is the case many times
over the past four months (READ
MORE). 
  If you have the flexibility to wait until Thursday
morning to see how rates fared after Wednesday’s Fed Announcement, that’s
allowable even if it’s not advisable due to the limited nature of potential
gains. We say that because we  do think it’s possible the Fed signals a
less optimistic outlook this week, which would be supportive of an improvement
in Best Execution Mortgage Rates.  Either way, we view floating as risky
given the uncertainty of that situation in combination with the fact that the
4.875% Best-Execution rate which we know will be a hard barrier to break. 
So although longer term, more flexible outlooks can still float in speculation
of further gains, the upside is limited enough for shorter term outlooks to
favor locking. We are definitely in “wait and see” mode until
then….

CURRENT GUIDANCE: If you have the flexibility to wait until Thursday
morning to see how rates fared after tomorrow’s Fed Announcement, that’s
allowable even if it’s not advisable due to the limited nature of potential
gains. We say that because we  do think it’s possible the Fed signals a
less optimistic outlook this week, which would be supportive of an improvement
in Best Execution Mortgage Rates.  But
just because it’s POSSIBLE, doesn’t mean it’s LIKELY though.  Things can go either way, and the secondary mortgage market is definitely showing its resistance to the idea of taking the
conventional 30yr fixed Best-Execution rate below 4.875%.  If
you’re in the market to remove risk from your scenario, now’s a great time to
favor locking.  Conversely, if you’re in
the market for risk, it’s also not insane to float for potential gains.  Good times…

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
want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you
want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in
the bond market?

The Week Ahead: FOMC, Treasury Auctions, Q1 GDP, Much More…

MORE PERSPECTIVE ON THE RATES RALLY

—————————-

*”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
process.

Article source: http://www.mortgagenewsdaily.com/consumer_rates/208960.aspx

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