After being stuck in the same spot for over a month, home loan borrowing costs shot higher today at their most violent pace
since early February. Best-Execution mortgage rates moved up in the process.
This is the eventuality to which we’ve been referring with comments such as: “The risks
associated with this range go back to the concept of “stored energy”
in the bond market. Think of it this way: the longer the market
stays in limbo, the faster rates will travel when the levee breaks and
stored energy is released. That means if you are floating when stored energy is
released, you are running the risk of losing your current quote.”
To see just how much costs moved today relative to recent offerings, take a
look at the chart we normally post each Friday.
It graphs the average origination closing costs associated with specific
mortgage note rates as quoted by the five major mortgage lenders.
If the note rate line is moving up, the closing costs associated with that
rate quote are rising. In December, closing costs rose rapidly. Mortgage rates
did improve from those levels, but then moved sideways for 7-weeks. And then
the range broke following the January Employment Situation Report and consumer
rate quotes rose back to their December highs. As one can see, borrowing
costs have steadily improved afterward before running into a wall near the lows
of the year. Since then borrowing costs have slowly drifted higher before spiking today.
The spike is pretty obvious….
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
UPDATED CURRENT MARKET: The “Best Execution” conventional 30-year
fixed mortgage rate MOVED HIGHER to 5.125% today after an extended period at 4.875%.
For those looking to permanently buy down their rate to 5.00%, this quote
carries higher closing costs but the upfront fee to permanently buy down your
rate to 5.00% is worth it to many applicants. We would generally only
advise the permanent floatdown if you plan to keep your new mortgage
outstanding for longer than the next 5years. Ask your loan officer to
run a breakeven 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 now best priced at 4.25%. Five
year ARMS are stratified and there is more variation in what will be “Best-Execution”
depending on your scenario. We recommend
break-even-analysis for several potential rates.
PREVIOUS GUIDANCE: Even though borrowing costs moved more than
average today, we’re still in a sideways range. The longer we go without
getting a clear sense of market direction, the higher the risks involved in
floating. It’s not that a longer waiting period automatically pressures
rates higher, it just means the longer rates stay sideways, the more energy
they store for their next movement up OR down. Our guidance is unchanged:
If you can’t afford or don’t want to take a risk, lock now because it might not
get any better from CURRENT MARKET again. If you’ve got time,
flexibility, or otherwise are not in any particular rush or pressing need to
lock your loan, we still think it’s possible that rates make one more run lower
in the months ahead.
CURRENT GUIDANCE: Today’s move in the Best-Execution rate could be a brief
foray into unpleasant territory or merely the first day of a new trend of higher rates. Though there’s no way to know for sure if
economic data or news headlines will show up any time soon to ease the pain,
the possibility that they WON’T is enough for us to suggest the following:
Until further notice, your decision to lock or float should assume that rates
will get worse before they get better, if they get better. Believe it or not, we are STILL able to
conceive of a rates rally if the underlying bond markets are able to hold their
ground at some important nearby levels.
We’ll let you know if they do and point you in the direction of more
detailed analysis if you want it, but for now, it’s fair to say the lock bias
has ticked up a notch in intensity.
One VERY IMPORTANT CAVEAT to any conversation about “Best-Execution” mortgage rates: Pricing is much more stratified than normal right now due to the recent changes in Loan-Officer Compensation. Because of this, the Best-Execution rate can vary greatly from lender to lender, and we advise doing a break-even-analysis on several available rates.
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 buydown 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