Mortgage Rates: Once Again Storing Energy

After drifting progressively higher for seven straight sessions, we've finally seen some stabilization and even modest improvements in home loan borrowing costs.

We were hoping the release of the Employment Situation Report on Friday might provide the market with a new directional bias, but after a volatile week the only thing confirmed is more indecision and uncertainty. Mortgage rates are essentially trendless with an equal chance at moving higher or lower. 

Previously we'd mentioned "teetering on a shift..."  Little has changed.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is still 4.875%.  For those looking to permanently buy down their rate to 4.75%, this quote carries higher closing costs. The upfront fee to permanently buy 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 4.75%. 15 year fixed conventional loans are best priced at 4.125%. Five year ARMS are best priced at 3.50%.

PREVIOUS GUIDANCE: It would have been convenient if the Employment Situation Report left markets with a renewed sense of purpose and momentum but unfortunately, we've only been offered more uncertainty  (we say "more" because a traditionally influential piece of economic data failed to move the markets today).  While that makes it harder to predict the future, it does little to change our guidance.  If you've got time, flexibility, or otherwise are not in any particular rush or pressing need to lock your loan, we still think it's possible that rates make one more run lower in the months ahead.  If you can't afford or don't want to take a risk, lock now because it might not get any better from CURRENT MARKET again. Can't wait to see what happens next week.

CURRENT GUIDANCE: The longer we go without getting a clear sense of market direction, the higher the risks involved in floating.  It's not that a longer waiting period automatically pressures rates higher, it just means the longer rates stay sideways, the more energy they store for their next movement up OR down.  Considering that the costs for a 5% loan (for example) have only been lower a few days this year (see last week's CHART OF CLOSING COSTS broken down by available rates), our guidance is unchanged: If you can't afford or don't want to take a risk, lock now because it might not get any better from CURRENT MARKET again.  If you've got time, flexibility, or otherwise are not in any particular rush or pressing need to lock your loan, we still think it's possible that rates make one more run lower in the months ahead. 

ECONOMIC CALENDAR: THE WEEK AHEAD

"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.