Mortgage Rates: Unfavorable Risks
Home loan borrowing costs increased today, basically to the high side of their recent "sideways" range. Lenders continue to price their loans from a defensive posture. These are generally unfavorable conditions for fencesitters. The market's "path of least resistance" is toward higher rates....
CURRENT MARKET*: The "BestExecution" conventional 30-year fixed mortgage rate is 4.625%. Some lenders are 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 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.
ONGOING GUIDANCE: Floating in this environment is a crapshoot. Both stocks and bonds are maneuvering through major market uncertainties. Market participants are focused 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: Mortgage rates are looking like they may shift from moving sideways to higher. Although this view could change in a matter of days, until/unless we see bond markets get back to a stable or improving pattern, risks vs. rewards favor locking.
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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.
CAUTION: 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?