Mortgage Rates: Path of Least Resistance
Home loan borrowing costs were basically unchanged today. Mortgage rate movements have gone sideways. Fear of the unknown has put lenders back in a defensive position. These are generally not favorable conditions for rate watchers. The "path of least resistance" is tilting toward higher rates....
CURRENT MARKET*: The "BestExecution" conventional 30-year fixed mortgage rate is still 4.625%. When taking into account loan pricing improvements that were awarded last week, several lenders are now offering 4.50%. On FHA/VA 30 year fixed "BestExecution" is 4.375% and in some cases 4.25%. Strong 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 "BestExecution" depending on your individual scenario.
PREVIOUS GUIDANCE: Floating in this environment is a crapshoot. Both stocks and bonds are maneuvering through major market uncertainties. And the week ahead holds little new economic data, leaving market participants to focus on news headlines regarding U.S. budget issues, EU debt contagion concerns, and financial earnings. That puts the direction of mortgage rates at the mercy of factors which don't exactly adhere to schedules or expectations. Yes there's still room to float longer term deals, but if home loan borrowing costs start to rise in the near future, it won't be long before Best Execution rate quotes are being pressured higher, making us more inclined to advise locking short-term floats (those that must lock in less than 15 days).
CURRENT GUIDANCE: We remind rate watchers that lenders are known to price loans from a defensive stance when the broader bond market is in limbo. Floating in this environment is a crapshoot. It is best reserved for those operating on a longer-term closing timeline. This provides a buffer to allow for corrections when/if the market does move in an unfavorable direction.
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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.