Mortgage Rates: Limited Incentive to Float
Home loan borrowing costs went on a winning streak last week, helping the Best Execution conventional 30-year fixed mortgage rate dip back down to 4.875%. This erased a spike in closings costs that occured in the previous week. Here is a chart illustrating the behavior of consumer borrowing costs.
Although it was a volatile, headline driven session, loan pricing manage to add improvements today. This extends a rate-watcher friendly trend in the primary mortgage market. See the above referenced chart for a visual depiction.
CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 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: 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.
CURRENT GUIDANCE: We don't know how long this rally will last but the manner in which it's progressing is among the more aggressive eventualities we foresaw when upgrading our "lock/float" outlook. If you've been floating since we first reintroduced it as an option just over a week ago, you've saved enough money that it makes good sense to lock your rate and move on. One of the key reasons for that: 4.875% Best-Execution will be hard to break and rates are basically back at their best levels since January with the exception of a short period in the middle of March (which benefitted from a flight to safety rally fueled by crisis in Japan). We'll keep the door open for inclined floaters until loan pricing begins to worsen. Those who can't afford to pay higher closing costs than their current quotes should always lock. At least right now, you can do so knowing you've locked at some of the most aggressive rates of the year.
Limited Incentive to Float: MORE PERSPECTIVE ON THE CURRENT BARRIER IN LOAN PRICING
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.