Mortgage Rates: Back To "Stuck" Again

Mortgage rates worsened today. 

The level of panic lessened overnight in Japan, and despite several somewhat alarming headlines, the overall panic in the markets was not on par with that seen yesterday and the day before.  The situation seemed dire enough for bond markets to move to territory that allowed an exploratory run of a 4.75% Best Execution rate yesterday, but on today's moderation, we're right back to the long-standing "stuck spot" at 4.875.  In short, markets began to reverse some of the flight-to-safety that had benefited rates over the past two days.

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.

UPDATED CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate IS BACK to 4.875% after falling to 4.75% yesterday (not universally, but in some cases).  For those looking to permanently buy down their rate to 4.75%, this quote carries higher closing costs but given the recent availability of 4.75% as a Best Execution rate, these costs may be lower than they previously were.  Still, the upfront cost of permanently buying down your rate  to 4.75% is not worth it to every applicant, we would generally only advise the permanent floatdown if you plan to keep your new mortgage outstanding 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 back to 4.75%. 15 year fixed conventional loans are best priced at 4.125%. Five year ARMS are best priced at 3.50%, but there is much more stratification in this sector with higher or lower rates making equally as much sense depending on the lender and on the amount of time you intend to keep the loan.

PREVIOUS GUIDANCE:  The loan pricing buydown barrier has been broken, but the bond market hasn't committed to a sustained rally (NEED 4.0 MBS COUPONS). A "flight to safety" help us get here, that means mortgage rates are still at the mercy of headlines and a constant "flight to safety". This move could be brief or it could be the start of a sustained interest rates rally. Wait and see....

CURRENT GUIDANCE:  Guess what!  We didn't have to wait long to see the potential move referenced above was indeed "brief".  There's still plenty of uncertainty that could cause rates to make another attempt to move down to a 4.75% Best Execution, but we feel that those sorts of gambits are best reserved for borrowers with longer term outlooks or who are otherwise less sensitive to rate movements and/or who may not be in an urgent need to refinance.  Any time rates are near their best levels in over a month, it's always advisable for short term outlooks or those who are sensitive to movement in rates and costs to favor locking.  We're still on a fence between where we've been and where we might be able to go, but getting there is uncertain.

"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.