Home loan borrowing costs rose almost imperceptibly today, not nearly enough
to affect the Best-Execution mortgage rate.
Loan pricing still seems to be in
a holding pattern until next week when the market face a high-risk
event: a Federal Reserve meeting. We’d expect this event to better dictate the
direction of mortgage rates in the short-term.
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
PREVIOUS GUIDANCE: We’re looking at two distinct possibilities
with respect to the near term lock vs. float outlook. Longer term
outlooks can go ahead and punch out for the day as there’s not yet a scary
enough reason for inclined long-term floaters to jump ship. But for
short-termers, today (in combination with yesterday) raises the possibility
that recent improvements in rates are on hold until after next week’s FOMC
Announcement (Fed meeting). Past precedent suggests this is possible as
markets have occasionally traded the days up to FOMC announcements by
accounting for a certain “scary scenario.” Particularly, bond
markets may fear the Fed will indicate some sort of acceleration of rate hike
prospects. The other possibility is that the announcement will contain no
such “scary” indication, which suggests rates either return to
current levels or improve. Risky business to bet on such things
though. This recent introduction of potential weakness on a week where
rates are near their best levels further increases the slight lock bias we’ve
been presenting since 4.875% regained it’s status as the dominant
Best-Execution rate….which we know will be a hard barrier to break!
CURRENT GUIDANCE: Today’s market movements did nothing to
change the guidance we presented yesterday which suggested two
possibilities. The first possibility is
that that recent improvements in rates are on hold until after next week’s FOMC
Announcement (Fed meeting) as past precedent suggests that bond markets may
fear the Fed will indicate some sort of acceleration of rate hike prospects,
which would be negative for rates. The other possibility is that the
announcement will contain no such “scary” indication, which suggests
rates either return to current levels or improve. 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.
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 process.