Although borrowing costs rose today, the newly updated Best-Execution
mortgage rate offering we discussed on Wednesday
While recent increases in borrowing costs are acting like spackle on “the
wall” that had been preventing further rate improvements, trading in the secondary mortgage market today was encouraging.
It’s too soon to tell if the newer, lower Best-Execution availbilities
will become widespread or not.
CURRENT MARKET: The “Best Execution” conventional 30-year
fixed mortgage rate is in a state of flux between 4.75% and 4.625%. Some
lenders are already quoting C30 loans at 4.625% with no origination
points. If you are looking to move down from there or merely between the
two, you’ll be assessing the trade-offs between higher closing costs and lower
monthly payments. 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 also a
moving target roughly centered on 4.375% with adjacent rates being logical in
some scenarios. 4.50% is a no-brainer for everyone on FHA 30yr loans
though. 15 year fixed conventional loans are best priced at 3.875%. Five
year ARMs are best priced at 3.25% but the ARM market is more stratified and
there is more variation in what will be “Best-Execution” depending on
your individual scenario.
PREVIOUS GUIDANCE: First of all, the possibility of an
intermediate to longer term rates rally remains on the table for yet another
day. So for all the flexible or aggressive long term scenario people in
the audience, you’re excused for the day. As for everyone else, loan
pricing deteriorated today, leaving us feeling defensive about recent
improvements in the short-run. You should be too. We saw a good example
today of the sorts of pull-backs that can come even in the midst of a
predominantly bullish run in mortgage rates. As we’ve said in the past,
if you’re seeing the lower of the two Best-Ex quotes mentioned in the Current
Market section, the goal is to KEEP that rate rather than floating for the
possibility of slightly lower closing costs.
CURRENT GUIDANCE: While we continue to see a longer term rally
as a possibility, we’re wary of short term pull-backs for shorter term or
otherwise more constrained scenarios despite the strong showing made by bond
markets in the second half of today’s trading session. As
we’ve said in the past, if you’re seeing the lower of the two Best-Ex quotes
mentioned in the Current Market section, the goal is to KEEP that rate rather
than floating for the possibility of slightly lower closing costs.
What MUST be considered BEFORE one thinks about capitalizing on a
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
*”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 fiscal frisking that comes along with the underwriting process.