Mortgage Rates: High-Risk Event Ahead

By: Matthew Graham • Thu, May 5 2011, 5:12 PM

After spending the first four months of 2011 in a tight range, we're now in the midst of a potentially significant shift lower in home loan borrowing costs. However, such significant shifts have historically not been one way streets. That means there are still no easy answers in the decision making process regarding locking and floating into tomorrow's high-risk economic event: The Employment Situation Report.

UPDATED CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate move from 4.875% to 4.75% today. If you are looking to move down from there, you'll be assessing the trade-offs between higher closing costs and lower monthly payments. This could be worth it to applicants who plan on keeping their new mortgage outstanding for long enough to break even on the extra costs. More lenders, especially brokers, are pricing conventional loans aggressively because competition is tight in the primary mortgage market. On FHA/VA 30 year fixed "Best Execution" has fallen from 4.75% to 4.50%. 15 year fixed conventional loans are best priced at 4.000%. Five year ARMs are best priced at 3.375% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario.

See Rates from Lenders in Your Area

PREVIOUS GUIDANCE: "Current Market" Best Execution quotes carry the most aggressive borrowing costs we've seen since early December. We're now witnessing the early signs of what might be a shift lower in mortgage rates but again, this is only the beginning of what could be an extended rally in the bond market, nothing has been confirmed though. If bond investors reverse their sentiments, the rate spike that follows could very well be violent. That may happen as soon as Friday morning when the monthly Employment Situation Report is released (high-risk event). If you're being offered a below "current market" quote, be extra defensive. Your main mission should be keeping it! If you are interested in learning more about the technical factors associated with a potential interest rates rally, we recommend reading this post as it provides pertinent perspectives and explains the situation in Plain and Simple terms. As always, if you want to benefit from another leg lower in Best Execution mortgage rates, you must read the rules.....

CURRENT GUIDANCE: Today's trading in the secondary mortgage market constitutes another step toward a shift lower in mortgage rates. Tomorrow may progress that process, give it pause, or totally reverse it. It remains true that if bond investors reverse their sentiments that the rate spike that follows could be violent and that this could happen as soon as tomorrow after the Employment Situation Report, even if rates move lower in the longer term. If you're being offered a below "current market" quote, be extra defensive. Your main mission should be keeping it! If you are interested in learning more about the technical factors associated with a potential interest rates rally, we recommend reading this post as it provides pertinent perspectives and explains the situation in Plain and Simple terms. As always, if you want to benefit from another leg lower in Best Execution mortgage rates, you must read the rules.....

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

Jobs Data Preview: Bonds Seeking Confirmation

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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 fiscal frisking that comes along with the underwriting process.