Mortgage Rates: Costs Creep Higher

Home loan borrowing costs moved slightly higher today. This is the fourth consecutive session where loan pricing has worsened by a thin margin. Best-execution mortgage rates were once again unchanged.

Today was not only light on the type of economic data that can move markets, but also on the breaking news headlines that have been dictating the direction of mortgage rates recently.  Trading activity was low, as were overall price shifts in the Secondary Mortgage Market.  Still,  mortgage-backed securities prices were slightly lower on the day, resulting in slightly higher consumer borrowing costs.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.875% after falling to 4.75% briefly last Wednesday (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: Headline news driven volatility continues to be a major factor in determining the direction of mortgage rates.  Meanwhile, technical developments in the Secondary Mortgage Market are creating bearish risks of their own.  No change to our recent stance that favors locking for short term/sensitive outlooks and allows for longer term/less urgent outlooks to wait for an additional recovery in mortgage rates.  But to reiterate, we think that in the short term, rates need to get a bit worse before they could get better in the longer term. 

CURRENT GUIDANCE: In the absence of major headline news, the risky technical developments we mentioned yesterday prevented the bond market from making  positive progress today. No change to our recent stance that favors locking for short term/sensitive outlooks and allows for longer term/less urgent outlooks to wait for an additional recovery in mortgage rates. Tomorrow should be a busier session as it contains more economic data. READ MORE: Event Exhaustion Leaves Bond Market Waiting for Guidance

"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.

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.