Home loan borrowing costs rose slightly today, Best-Execution
mortgage rates were unchanged. It seems like loan pricing may be in a holding pattern until
next week when the market goes against 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: As long as bond markets continue to
demonstrate the general level of strength that has characterized recent
trading, the door continues to stay open for floaters. Naturally, if you can’t afford to have closing costs rise or in the worst case scenario, have your rate move higher, then this won’t apply to you. Moving below 4.875% will require a sustained bond market rally though. If you do not have time to wait for this scenario to play out, you should lock now as 4.875% will likely be as good as it gets in the meantime.
CURRENT 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!
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.