Mortgage Rates: Best Execution Back to 4.875%

By: Matthew Graham • Fri, Apr 15 2011, 4:32 PM

Home loan borrowing costs moved lower today, bringing the Best-Execution conventional 30 year fixed mortgage rate back down to 4.875%.

Take a look at our most recent chart of the average origination costs tied to specific interest rate quotes (based on the offers from the five major mortgage lenders). If the note rate line is moving up, the closing costs associated with that note rate are rising. As you can see, consumer borrowing costs shot higher last week before reversing course this week.

Each line represents a different 30 year fixed mortgage note rate. The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW

See Rates from Lenders in Your Area

UPDATED CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate has fallen back to 4.875%. If you are looking to move down to 4.75%, this offer carries higher closing costs but could be worth it to applicants who plan on keeping their new mortgage outstanding for longer than the next 10 years. Ask your loan officer to run a break-even 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 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.

PREVIOUS GUIDANCE: Yesterday's strength was encouraging but could still prove to be a minor correction within the broader bearish trend. It could also turn out to be a legitimate reversal leading conventional 30-year fixed Best-Execution rates back to their recent perch at 4.875%. We're in wait and see mode.... The ceiling we hit today could be made of glass or concrete. As feared, it looks like markets have taken the entire week to decide which direction to push rates next. With Best-Execution rates improved from their recent highs, it's a good time for anyone who can't afford the risk of higher rates to favor locking. But much like yesterday, those willing and able to take a speculative risk for further improvements cannot be automatically labelled as "crazy" given recent gains. And thank your lender for absorbing today's price weakness when they should have increased borrowing costs! (COMPETITIVE MARKET!)

CURRENT GUIDANCE: We don't know how long this rally will last, but are more open to floating than we have been recently. Naturally, if you can't afford to have closing costs rise or in the worst case scenario, have your rate move higher, then this won't apply to you. Moving below 4.875% will require a sustained bond market rally though. If you do not have time to wait for this scenario to play out, you should lock now as 4.875% will likely be as good as it gets in the meantime.

IMPORTANT PERSPECTIVE: Reassuring Rates Rally Gives Pause to Bearish Bias

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.