The mortgage rate “wall” is beginning to crack.
Unlike previous sessions where borrowing costs didn’t rally enough to affect the position of the Best-Execution mortgage rate quotes, costs improved enough today to warrant the addition of some new verbiage in our “Current Market” update.
UPDATED 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: While we continue to see minor day to day
variations in the closing costs tied to current Best-Execution rate offerings,
mortgage rates themselves have hit a wall. In addition to that, underlying bond
markets have hit a similar wall as Best-Ex mortgage rates. We’d want to wait
until that wall is broken before departing from our defensive stance. Floating
in the short-term carries an even higher risk in the week ahead, especially on
Wednesday when the Minutes of the latest FOMC meeting are released (Fed’s Rate
CURRENT GUIDANCE: It seems like only yesterday when we
said “we’d want to wait until that wall is broken before departing from our
defensive stance.” Well, it was
yesterday! And here we are with the proverbial “wall” looking very close to
tumbling. If conditions don’t deteriorate tomorrow, our stance becomes a bit less defensive, although
we’d continue to caution shorter term scenarios that even an ongoing positive
trend is susceptible to periodic pull-backs. The possibility for an intermediate to longer term rates rally remains on the table.
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.