Mortgage Rates: BestEx on Edge
Home loan borrowing costs moved slightly lower today. This is the fourth consecutive day where borrowing costs have declined in the primary mortgage market. With this positive progress, we're now teetering on a shift lower in Best Execution* quotes...
CURRENT MARKET*: The "Best Execution" conventional 30-year fixed mortgage rate is 4.625%. While this was the case last week, few lenders were readily quoting it. More lenders were instead offering 4.75% (extra margin in rate sheets). But when taking into account loan pricing improvements awarded over the past four sessions, a greater number of lenders are actively quoting 4.625%. Some are even offering 4.50% again. On FHA/VA 30 year fixed "Best Execution" is 4.375% and in some cases 4.25% is on the table. FHA quotes at 4.50% are widespread. 15 year fixed conventional loans are best priced at 3.75%. 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.
PREVIOUS GUIDANCE: Today was the first significant day of data for bond markets to digest this week. And that went over fairly well with no major changes to bond prices in the secondary markets. If you floated through Friday's Jobs report or are a first time reader as of yesterday, the chances of Best-Execution rates improving from 4.625% to 4.50% are better than the chances they'll rapidly evaporate to 4.75%. Although this outlook can change very quickly, we're more open to the idea of floating than we have been recently. We'd urge inclined floaters to pay careful attention to market movements for an unfriendly turn-around, but for now, there are a wide variety of scenarios that may be able to grab another .125% lower in rate while only risking increased closing costs if markets move against you.
CURRENT GUIDANCE: With four consecutive days of rallying behind us, lenders are now teetering on a shift lower in Best Execution mortgage rates. We're now more open to the idea of short-term floating than we have been over the past three weeks. One important factor that will play a role in Best Execution quotes moving lower is a continued "flight to safety" into the bond market.
A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.
----------------------------
BEWARE: MND guidance is speculative in nature. We don't have a crystal ball,
we can't predict the future, we can only share our outlook. Making the
following considerations extra 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?
*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.