Mortgage Rates: Best Execution Back to 4.875%

Mortgage rates dodged a bullet last Friday following the release of the February Employment Situation Report.  Although headlines indicated improving conditions in the labor market, stocks still sold off and a flight to safety helped rally the bond market and consumer borrowing costs.

A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.

HERE is a chart illustrating the directional  behavior of mortgage rates

The week began with stocks rallying and benchmark interest rates on the rise. However as the day wore on traders began taking profits on their equity positions and the major stock indices fell.  This led to another flight to safety into bonds and gave lenders a chance to reprice for the better.  Closing costs and mortgage rates ended the session basically unchanged vs. Friday.

CURRENT MARKET: The "Best Execution" conventional 30 year fixed mortgage rate is 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 only 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:  The conventional 30-year fixed Best Execution note rate has fallen to 4.875%. Consumer borrowing costs have almost recovered fully from the mid-week hiccup we experienced on Wednesday and Thursday. There is still work to done, but after reprices for the better were awarded today by lenders, we're just above one-month lows. 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.

NEW GUIDANCE: No Change. Same as Friday. "Current Market" is as good as it gets for at least the next week. We are encouraged by the behavior of the bond market but remain defensive.   READ MORE: LOAN PRICING STALLED

"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.

HERE is the economic calendar for the week ahead.