Mortgage Rates: Fighting Back

By: Matthew Graham • Tue, Apr 12 2011, 4:33 PM

Home loan borrowing costs declined significantly today, leading to an improvement in the conventional 30-year fixed Best-Execution mortgage rate.

Today's gains come hard on the heels of a recent spike in home loan borrowing costs (Check out this chart: VISUALIZING THE SPIKE). The counter-currents seen today could prove to be a minor correction in a broader trend or a legitimate reversal leading conventional 30-year fixed Best-Execution rates back to their recent perch at 4.875%. We'll know more about which scenario is more likely as each day passes this week.

UPDATED CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate has fallen to 5.00% after spending three days at 5.125%. Some lenders may be willing to go down to 4.875% but that is a best-case scenario. 5.00% is a much more common Best Execution quote. In the case of 4.875%, this offer carries higher closing costs but could be worth it to applicants who plan to keep their new mortgage outstanding for longer than the next 5 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 now best priced at 4.25%. Five year ARMS are still stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario.

See Rates from Lenders in Your Area

VERY IMPORTANT CAVEAT: Mortgage rates are being quoted in a wider range right now due to recent regulatory changes in Loan Officer Compensation policies. Because of this, the Best-Execution mortgage rate can vary greatly from lender-to-lender. The quotes we have listed above are on the more aggressive side of the primary mortgage market.

PREVIOUS GUIDANCE: The week ahead is busy. Here's our full write up... While we do see a glimmer of opportunity for recent trends in rates to moderate, that would rely on an almost perfect alignment of the heavens in terms of economic data, corporate earnings, and Treasury auctions. Thus, the same guidance remains in place until such a thing happens. Plain and simple: We'd be in lock mode until rates aren't rising any more, or at least until rates show some motivation to stop rising. We'll let you know when we feel it's safe to confirm that.

CURRENT GUIDANCE: The glimmer of opportunity for recent mortgage rates trends to moderate is still alive after the first of 4 days that will likely decide its fate. This actually complicates matters because it provides potential enticement for those inclined to float. Attempting to take advantage of this mini-recovery is highly speculative and highly risky. While we'd continue to advise anyone who cannot afford the risk of a higher rate toward locking, those with flexibility got enough of an improvement in rates today that IF things don't keep improving, you'd likely have a chance to lock in with rates "only" as bad as they were yesterday or Friday.

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 bond market?

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"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 buy down 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.