Mortgage Rates: Take Cover
Although BestExecution quotes didn't change today, the borrowing costs associated with those rates rose enough to erase yesterday's improvements, plus more.
Markets currently hang on every headline regarding the debt-ceiling debate (not exclusively, but disturbingly close). This makes the securities that govern home loan pricing especially volatile and unpredictable. Rather than change rate sheets with each rapid movement in the secondary market, it's not only easier on all parties involved, but downright necessary for lenders to be extra conservative with rate sheet offerings.
CURRENT MARKET*: The "Best Execution" conventional 30-year fixed mortgage rate is 4.625%. Fewer lenders are offering 4.50% without charging an origination fee. On FHA/VA 30 year fixed "Best Execution" is 4.375% but lenders seem more comfortable quoting 4.50%. 15 year fixed conventional loans are best priced at 3.75%, for now. 15 year Best Execution quotes are teetering on a shift higher to 3.875%. 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 "Best Execution" depending on your individual scenario.
ONGOING GUIDANCE: Floating in this environment is a crapshoot. Both stocks and bonds are maneuvering through major market uncertainties. Investors are focused on news headlines regarding U.S. budget issues, EU debt contagion concerns, economic data, and quarterly earnings. That puts the direction of mortgage rates at the mercy of factors that don't exactly adhere to schedules or expectations. While we still view underlying economic fundamentals as being supportive of lower mortgage rates in the future, the short-term risks associated with a potential U.S. debt default leave us more inclined to advise locking, especially deals that must be ready to close in the next 10-15 days. This provides protection from rising rates and still gives your lender a chance to negotiate if rates decline.
Look folks... Anything can happen with these headlines. And when all is said and done, there's probably some measure of mortgage rate goodness that is waiting to seep back onto rate sheets. But for now, dropping all the variables into the magic 8-ball keeps yielding the same result: risks favor locking. Perhaps if lenders actually could afford to reprice rate sheets for the better with each positive movement in the secondary market, the lock/float considerations would be a bit more balanced. But until we're out of these rather unprecedented woods, lenders are likely to continue "taking it away" more readily than they'll "give it back."
----------------------------
*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?