Yesterday, we noted pressure building on BestExecution rates. Today, things boiled over unfavorably and the loan pricing losing streak extended into a fourth day. Mortgage Rates got hit hard enough that
yesterday’s quotes may not even be available today without additional
Our ongoing guidance recently has
been to take advantage of recent rate offerings as soon as possible, noting
that “the frustration of missing out on “high 3’s” and instead
getting “low 4’s” seems nowhere near as bad as the frustration of
missing out on a refi opportunity (moving from 5% to 4.25% for instance)
altogether.” That turns out to be pretty
prophetic as you’ll be lucky to see BestExecution at 4.25% today.
CURRENT MARKET*: The Best Execution 30-year fixed mortgage
rate is now 4.25% to 4.375% depending on your lender/scenario. Several
lenders are still willing to offer lower rates, but those quotes carry with
them additional closing costs. On FHA/VA
30 year fixed Best Execution rose from what had been a solid 4.0% to
4.25% today. Deals can be structured
with lower rates, but again, you’ll pay more for those, so make sure you assess
the time it takes to break-even on the extra expense. 15 year fixed
conventional loans are best priced at 3.625%. Five year ARMs are still best
priced at 3.25. ARMs seem to have bottomed out.
A note on the greater-than-normal variation in rate offerings between
lenders. There is an increased amount of
variety in what individual lenders are now quoting as their BestExecution
rates. This is a factor of price volatility in the secondary mortgage
market. Unfortunately when volatility picks up in the secondary
mortgage market, the cost of doing business gets more expensive for lenders
(hedging costs go up). Those added costs are usually passed down to consumers
via extra margin in rate sheets.
Additionally, the recent rates rally makes lenders busy enough that some
control their inbound volume by raising rates regardless of the secondary
mortgage market in order to discourage new applications/locks.
GUIDANCE: Rates are on the rise and you missed or passed on the
opportunity to lock, and now wondering what to do? A couple things to keep in mind. With 30 yr rates in the low 4’s, there’s
still plenty of opportunity from a long term standpoint. You just might be paying more for it. This assumes either that rates will keep
rising or that your hands are otherwise tied.
Today is a grey area between floating and locking for those with longer
time horizons or more flexibility to losses.
For instance, someone with a 5.125% rate currently, and no need to refi
would be more flexible than someone buying a home who had to lock quickly. Whatever the case, the best chance for
near-term reprieve is in the wake of Friday’s High-Risk-Event when Bernanke
gives his annual speech at Jackson Hole.
Risky to hope for that, but a possible break in the recently gloomy mortgage
rate clouds. Bottom line though, if this
move up panicked you, and your quote still makes sense, why risk losing it
MORE GUIDANCE: Refi
Roadmap: A Locked Rate Isn’t a Closed Loan — must read
*Best Execution is the most cost 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 30year 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
CAUTION: MND guidance is speculative in nature. We don’t have a
crystal ball, we can’t predict the future, we can only share our outlook.
Making the following considerations extra important……………………
What MUST be considered BEFORE one thinks about capitalizing on a rates rally?
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