Mortgage Rates: See the Sideways Shuffle


After tearing down “The Wall” last Friday, the mortgage rate rally stalled and went sideways this week.

We’d describe this pause as mortgage rates taking a “breather” in the wake of a 2-month rally.  If you’re looking for a deeper explanation, read THIS POST on “auction concessions”. The sideways shuffle seen over the past five days serves as a
reminder of the threats faced by home loan borrowers when floating a loan on
a short-term timeline. The market doesn’t always act the way you’d expect it to and rallies don’t last forever. Investors always end up finding a way to question positive progress, and that generally leads to an unfriendly directional reaction.

Sideways mortgage rate behavior followed by an abrupt drop followed by another spell of mostly sideways movement is apparent in the updated chart of Consumer Rate Quotes below. If the line is moving up, origination costs are rising.  If the line is moving lower, costs are getting cheaper. The rapid decline in costs which occurred last Wednesday was the second stage of “The Wall” coming down. Last Friday “The Wall” completely crumbled. And then Consumer Rate Quotes barely budged this week. Still, mortgage rates haven’t been this aggressive since November….

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. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW

Execution” conventional 30-year fixed mortgage rate is 4.50%.
Aggressive 4.375% quotes are still being reported but will  involve increased
closing costs in the form of origination fees.  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
15 year fixed conventional loans are best priced at 3.75%. Five
year ARMs are best priced at 3.125% but the ARM market is more
stratified and
there is more variation in what will be “Best-Execution” depending on
your individual scenario. 

GUIDANCE:   With  “The Wall” now torn down a path has
been paved for mortgage rates to continue on the path toward more
improvements. An extended rally
will not come without setbacks though. Short-term corrections are to be
expected along the way.  That means borrowers working on a shorter
lock/float timeline should remain defensive.
That point was proven this week. Your main goal is to
protect new, lower rate quotes from short-term market fluctuations.  The overall bullish
trend is still very much in tact though.  Intermediate to longer-term scenarios
are more than justified in floating.

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 ot rally as fast as you
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough


“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
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
costs. If the terms of your loan trigger any risk-based loan level
adjustments (LLPAs), your rate quote will be higher. If you do not fall
into the “perfect borrower” category, make sure you ask your loan
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.

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