Mortgage Rates: Flight to Safety Put to Test
This week begins with mortgage rates holding onto recent improvements. Last week, we discussed how a "flight to safety" helped drive up investor demand for bonds, which ultimately led to lower mortgage rates. The Best Execution conventional 30-year fixed rate moved down twice during the week.
CURRENT MARKET: The "Best Execution" conventional 30 year fixed mortgage rate has fallen to 4.875%. For those looking to buy down their rate to 4.75%, this quote carries higher closing costs. The upfront cost of permanently buying down your rate to 4.75% is not worth it to many applicants. We would generally advise the permanent floatdown if you plan to hold your new mortgage for longer than the next 10 years. 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 best priced between 4.125% and 4.25%, but 4.25% is more efficient in terms of the floatdown breakeven cost. Five year ARMS are best priced at 3.625%.
PREVIOUS GUIDANCE: No real change. The bond market is
still in limbo in terms of an extension of the recent rally. Approach floating
from a defensive posture, especially after Best Execution improved to 4.875%
this week because it's going to take a sustained rally in the bond market
before Best Execution reaches 4.75%. That means current market is likely as
good as it gets for at least the next week. If you don't have more than a week
to float your loan, you should be locking very soon. As you can see in the
chart above, it's been almost a month since rates were this aggressive. And we
wouldn't be surprised one bit if the market pushes back against the recent
mortgage rates rally next week. Profit taking is a naturally occurring event
whenever interest rates move lower. READ MORE: IN-DEPTH BOND MARKET BREAKDOWN
NEW GUIDANCE: If we had been "in limbo" about extending the recent
rally at the end of last week, we're now perhaps outwearing our welcome. The environment has been generally positive and
drama-free for mortgage rates for a few weeks now. So much that one has to wonder when we might see a natural push back in the bond market. The rally has gone on long enough so a bit of a correction is possible,
even if the longer term trend remains borrower friendly. From that perspective, with high impact economic events
coming up this week and the "Flight to Safety" set to be tested, this is a good week to look at locking. Especially with rates at their best levels in a month and the understanding that we'll need a major movement in the secondary mortgage market for
best-execution rates to fall below current levels. The Employment Situation Report on Friday is the big-ticket economic
data this week, with the power to push rates higher or lower depending on how
the market receives it. FULL ECON CALENDAR AND MBS MARKET COLOR
What MUST be considered BEFORE one thinks about capitalizing on a rates
recovery?
1. WHAT DO YOU NEED? Rates might not recover as much as you
want/need.
2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you
want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in
the secondary mortgage 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
process