Mortgage Rates: Risking Another Move Higher

By: Matthew Graham • Thu, Jun 30 2011, 3:58 PM

Volatility attacked on Tuesday and attacked again today.

For the second time this week, home loan borrowing costs have risen about as much as they can without negatively impacting the CURRENT MARKET Best Execution Mortgage Rates.

The abrupt jump in cost is again due to bond market volatility following a "technical breakdown." Read More from MBSonMND.

CURRENT MARKET*: The "Best Execution" conventional 30-year fixed mortgage rate has risen to 4.625%. Some lenders may already be quoting 4.75% though. On FHA/VA 30 year fixed "Best Execution" is 4.375% and potentially even 4.50% at some lenders (GNI pricing = better). 15 year fixed conventional loans are now best priced at 3.875%. Five year ARMs are still best priced at 3.25% 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: After failing on repeated occasions to extend the two-month rally, mortgage rates are acting exhausted. That means the path of least resistance is up for interest rates, at least in the short-term. That puts us in a defensive posture for the next 10 to 20 days. We are not ready to change our outlook for lower rates by the end of the summer though. This corrective behavior happened last year too, which supports our long standing view that "history is repeating itself" in the bond market.

CURRENT GUIDANCE: Previous guidance nailed it: The path of least resistance is up for interest rates, at least in the short-term. That puts us in a defensive posture for the next 10 to 20 days. And markets demonstrated that again today with sharp increases in costs. You have two choices: 1) lock up and get out now, avoiding any ongoing volatility or 2) try to capitalize on a brief correction. The former is the safe advice. With respect to the latter, there will be ups and downs no matter which direction rates are moving. And in the current environment, those swings can be BIG. You're almost looking at another note rate higher in terms of Best-Execution quotes, so PROTECT THAT, especially if you can't afford to lose it. For the thrill-seekers out there, or the longer-term, more flexible scenarios, we haven't seen anything yet that kills chances of lower rates by the end of the summer. Bumpy ride in assessing that possibility though.... Making the following "rules of the game" doubly important.

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?

SEE A CHART OF NEW YTD RATE LOWS

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"Best Execution" is the most cost 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.