Mortgage Rates: Anything Can Happen

The theme of volatility is ongoing. Loan pricing has moved in the opposite direction from the previous day for 6 sessions in a row now.   The increases seen yesterday in home loan borrowing costs were erased today leaving things slightly worse than average vs the last 2 weeks, but about middle of the road when comparing to the last month. 

The only bet that has a decent probability of success in this environment is that no bets are clearly better than any others.  This should continue to be the case until at least some semblance of resolution makes its way to the debt-ceiling debate. This makes for plenty of volatility in the meantime. 

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.

There's really no reason to deviate from the ongoing guidance even though things improved today.  In fact, "things improving" would be even more of a suggestion to lock in this environment of volatility where each of the last six days has moved in the opposite direction from the previous day (and in greater amounts).  But that's based purely on a look at what the lines on the charts have been doing.  Truth is, and continues to be, anything can happen.

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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?