Although borrowing costs rose today, the newly updated Best-Execution mortgage rate offering we discussed yesterday remains unchanged. Unfortunately, the instances of lenders offering these more aggressive “Current Market” quotes are fewer and farther between.
In short, the wall blocking mortgage rates from continued positive progress began to crack yesterday. Today’s price action added a few globs of spackle to those cracks in attempt to keep the wall standing.
CURRENT MARKET: The
“Best Execution” conventional 30-year fixed mortgage rate is in a
state of flux between 4.75% and 4.625%. Some lenders are already quoting C30
loans at 4.625% with no origination points. If you are looking to move
down from there or merely between the two, you’ll be assessing the trade-offs
between higher closing costs and lower monthly payments. 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 also a moving target roughly centered on 4.375%
with adjacent rates being logical in some scenarios. 4.50% is a no-brainer for
everyone on FHA 30yr loans though. 15 year fixed conventional loans are
best priced at 3.875%. Five year ARMs are best priced at 3.25% 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: It seems like only yesterday when we said
“we’d want to wait until that wall is broken before departing from our
defensive stance.” Well, that was yesterday! And here we are with the
proverbial “wall” looking very close to tumbling. If conditions
don’t deteriorate tomorrow, our stance becomes a bit less defensive, although
we’d continue to caution shorter term scenarios that even an ongoing positive
trend is susceptible to periodic pull-backs. The possibility for an
intermediate to longer term rates rally remains on the table.
CURRENT GUIDANCE: First of all, the possibility of an
intermediate to longer term rates rally remains on the table for yet another
day. So for all the flexible or
aggressive long term scenario people in the audience, you’re excused for the
day. As for everyone else, loan pricing deteriorated today, leaving us feeling defensive about recent improvements in the short-run. You should be too.
We saw a good example today of the sorts of pull-backs that can come
even in the midst of a predominantly bullish run in mortgage rates. As we’ve said in the past, if you’re seeing
the lower of the two Best-Ex quotes mentioned in the Current Market section,
the goal is to KEEP that rate rather than floating for the possibility of
slightly lower closing costs.
What MUST be considered BEFORE one thinks about capitalizing on a
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
*”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 process.