Mortgage Rates: This is Nuts!
Mortgage rates rallied again today, extending their winning streak to four straight sessions. Positive progress has not been modest either. Improvements have been significant. A picture is worth a thousand words...
In the chart of Consumer Rate Quotes below, if the line is moving up, closing costs are on the rise. If the line is moving down, costs are on the decline. Consumer borrowing costs crept higher last week before plummeting on Friday, then again yesterday, and once again today. Mortgage rates haven't been this low since early November 2010!
The size and speed of the mortgage rate rally has been, for a lack of better words, nuts.
The chart above compares the average origination costs (as a percentage of loan amount) for several available mortgage note rates as quoted by the five major lenders. Each line represents a different 30 year fixed mortgage note rate. The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW
IMPROVED CURRENT MARKET*: The BestExecution conventional 30-year fixed mortgage rate has improved to 4.375%. Some lenders are even offering 4.25% but that quote carries with it additional closing costs. On FHA/VA 30 year fixed BestExecution is 4.25% with some lenders willing to go as low as 4.00% (includes additional closing costs). 15 year fixed conventional loans are still best priced at 3.75% but we've seen aggressive quotes at 3.625% too. Five year ARMs are still best priced at 3.25%.
It's important that we point out an increased amount of variation in what individual lenders are quoting as their BestExecution rates. This is a factor of price volatility in the secondary mortgage market. Unfortunately when volatility picks up in the secondary mortgage market, the cost of doing business gets more expensive for lenders (hedging costs go up). Those added costs are usually passed down to consumers via extra margin in rate sheets.
GUIDANCE: Markets have shifted their attention back to economic fundamentals, which have been supportive of lower mortgage rates lately. And while plenty of indicators do have the potential to improve the overall economic outlook in the days ahead, they're more than likely going to confirm a dour situation and keep a lid on rising mortgage rates. The most influential data-point of the week comes on Friday morning, with the release of the July Employment Situation Report. We'll need this report to confirm the rally we've enjoyed over the past three days. From that perspective, given the size and speed of the recent rally, we may see rates go sideways for a few days and maybe even inch higher. This behavior would not be a sign of shifting sentiment as much as it would illustrate rally exhaustion. Put more simply, no rally lasts forever, especially when a "high-risk event" is just ahead. A path has however been paved for our longer-term mortgage rate outlook to come true. That means we see lower mortgage rates in the not so distant future. Just remember, it may not be a direct path lower, there will be ups and downs along the way.
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?
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*BestExecution 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 BestExecution 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