Mortgage Rates: Moment of Reprieve


After setting new lows last Thursday, mortgage rates drifted higher this week…that is until today when consumer borrowing costs improved sharply. This can be seen in the chart below….

If the note rate line
moving up, the
closing costs associated with it are on the rise.  If the note rate line
is moving down, the closing costs associated with it are falling. The lowest home loan borrowing costs of our
lifetime were available last Thursday. They didn’t stick around long though, mortgage rates went on a four day losing streak after that which pushed BestExecution quotes up by 0.125 to 0.25%.  Fortunately, anyone who didn’t lock their loan already was given a reprieve today when the market improved.  Mortgage rates aren’t quite as low as they were last Thursday, but they’re still super aggressive.

The chart above compares the average origination costs (as a
percentage of loan amount) for several available mortgage note rates as
quoted by the five major lenders. Each line represents a different 30
year fixed mortgage note rate.  The numbers on the right vertical axis
are the origination closing costs, as a percentage of your loan amount,
that a borrower would be required to pay in order to close on that note
rate. If the note rate graph line is below the 0.00% marker, the
consumer may potentially receive closing cost help from their lender in
the form of a lender credits. If the note rate line is above the 0.00%
marker, the consumer should expect to pay additional points at the
closing table to cover permanent buydown costs and origination fees.

CURRENT MARKET*: The BestExecution 30-year fixed mortgage
rate has moved down to 4.125%. Several
lenders are willing to offer lower rates, but those quotes carry with
them additional closing costs.  On FHA/VA 30 year fixed BestExecution
has improved back to 4.000%.  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 3.250%. 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
 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

GUIDANCE: If you missed the boat on record low mortgage rates last
November/October, the opportunity is still out there for the taking. And we
think you should jump on it as soon as possible. The risks involved in floating
have greatly expanded to include (1) lenders taking it upon themselves to
negatively adjust rate sheets (to slow loan production) and (2) interest rates
finding a bottom and moving higher on their own.   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 4.125% for instance) altogether.  If you decide to wait it out for lower rates, you’re basically betting on a weak jobs report next Friday.

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
: 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

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