Mortgage Rates: Wall Hit

By: Matthew Graham • Fri, May 13 2011, 4:51 PM

Home loan borrowing costs have hit a wall.

Since reaching the best levels of the year on Friday of last week, rates have been unable to improve further. That isn't a bad thing because they haven't exactly worsened either. Consumer rate quotes have instead held closely to the best levels of the year. It reminds us quite a bit of early March, when closing costs stagnated for several days after rapidly improving.

You'll see "the wall" we've hit in this week's updated chart, which compares origination costs as a percentage of your loan amount for several available mortgage note rates. If the line is moving up, costs are getting more expensive for that particular rate. If the line is moving down, costs are getting cheaper.

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

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.75%. 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 breakeven on the extra upfront costs. On FHA/VA 30 year fixed "Best Execution" is 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.

PREVIOUS GUIDANCE: And we'll keep on reiterating the lock bias for shorter term lock/float scenarios. You may not lock on the perfect day of the week, but you will still lock during one of the better weeks of the year. You're way ahead of the game. The possibility for an intermediate to longer term rates rally remains on the table.

CURRENT GUIDANCE: With the full week's worth of lender rate sheet information available on our chart, it's plain to see why we continue to express a bias toward locking. While there is a possibility that we've merely stalled and gone sideways before rates and costs improve further, it is not the highest probability result in the next week. It's more likely that costs will move higher. Whether that occurs temporarily or permanently is less certain, but as you can see in early March in today's chart, costs still worsened before ultimately improving on the last major occasion before we hit a similar wall. From a risk/reward standpoint, the decision is clear for shorter term outlooks. Lock 'em up. For those inclined to float or have no other choice, the possibility for an intermediate to longer term rates rally remains on the table. READ MORE: Margin Squeeze Hits Headlines. False Start Baked into Bonds .

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?

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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.