Mortgage Rates: Closing Costs Rise. Best Execution Steady

After worsening sharply on Tuesday, mortgage rates didn't move much yesterday.  But better than expected economic data this morning and a weak Treasury auction this afternoon provided a one-two punch that sent borrowing costs to the highest levels of 2011. All 20 days of it. Reprices for the worse were wide spread.

Interestingly enough, although closing costs did move higher today,  best execution mortgage rates remain unchanged. If your lender has been updating your loan pricing on a daily basis, your closing costs rose by about 0.25% of your loan amount today. This works out to $250 for every $100,000 you borrow.

The "best execution" conventional 30 year fixed mortgage rate is 4.875%. Lenders are still offering 4.75% but the upfront permanent buydown costs would take over 10 years to recover over the life of the loan. On FHA/VA 30 year fixed loans "best execution"  is 4.75%. If you're shopping for a 15 year fixed mortgage rate, we see a sweet spot at 4.25%. On 5-year ARMs, we've heard of very well qualified borrowers being quoted 3.50%.

Important Mortgage Rate Disclaimer: 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. Oh and we can't forget the intense fiscal frisking that comes as part of the underwriting process.

"Best Execution" is the most efficient combination of note rate 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.

Mortgage borrowers need to be made aware of some internal policy shifts that are taking place within the industry right now. Starting on April 1, Fannie Mae and Freddie Mac will have increased their fees on certain loans. However because the underwriting and loan delivery process takes about 30 days, lenders are implementing these new costs now. Specifically, borrowing costs have increased on deals with "loan to values" over 75%. This applies to even the most creditworthy borrowers. It is totally based on the amount you wish to borrow relative to the value of your home. Ask your originator for more information on the increase in "loan level pricing adjustments". It will impact your borrowing costs. HERE are the new costs.

Could it get even worse tomorrow?  It could. Could it get better? Yep. 

Given the range bound behavior of consumer borrowing costs, we're more inclined to say closing costs will improve tomorrow.  This is based on the fact that we've traveled from the aggressive side of that range all the way to the weak side in just a few days.  Each time this has happened over the past few weeks,  the range held and borrowing costs improved shortly thereafter. This is not guaranteed to happen but it's what we would expect to happen until the range is no longer intact.