Mortgage Rates: Still Historically Low

By: Matthew Graham • Thu, Aug 18 2011, 4:11 PM

Today is one of those days where the importance of NOT paying attention to the Treasury market for mortgage rate indications is strikingly clear. Although there are a few instances of lower-than-2% benchmark 10yr Treasury rates in the ancient past, the fact that 10yr notes dipped into the 1's today is an unprecedented event in modern economic history.

You might think that would result in an improvement in mortgage rates, but no such luck. When things are this volatile and move this quickly, the secondary mortgage market simply can't keep pace with the Treasury yields you'll now doubt hear your local news talk about tonight. In fact, those rapid movements ultimately served to weaken current mortgage rate offerings somewhat, thankfully, not enough to change the BestExecution mortgage rates, but depending on the lender, borrowing costs are higher today. This volatile, counterintuitive behavior is why our ongoing guidance is unchanged.

See Rates from Lenders in Your Area

(additional info about current volatility that we've been including in every post): Though many lenders have greatly improved their consumer rate quotes over the past two weeks, we must point out an increased amount of variety in what individual lenders are now quoting as their Best Execution 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. These costs are unavoidable. The best thing for mortgage rates right now is stability. Additionally, some lenders have been adjusting their loan pricing strategies to better control the flow of new loan originations. To put it more simply, some lenders are busier than others and can't take-in anymore business, so they've pushed rates higher to encourage consumers to either wait it out or find another lender before rates rise.

CURRENT MARKET*: The Best Execution 30-year fixed mortgage rate has fallen to 4.125%. Several lenders are willing to offer 4.000% and even 3.875% is possible for those interested in buying down their rate. 4.250% is widely-available. On FHA/VA 30 year fixed Best Execution is 4.000%, but 3.875 and even 3.750 are available with additional closing costs. 15 year fixed conventional loans are best priced at 3.625% but we're seeing aggressive quotes as low as 3.375%. Five year ARMs are still best priced at 3.25. ARMs seem to have bottomed out.

CHART OF RECORD LOW BORROWING COSTS

GUIDANCE: If you missed the boat on record low mortgage rates last November/October, the opportunity is still out there for the taking. And we think you should jump on it as soon as possible. The risks involved in floating have greatly expanded to include (1) lenders taking it upon themselves to negatively adjust rate sheets (to slow loan production) and (2) interest rates finding a bottom and moving higher on their own. The frustration of missing out on "high 3's" and instead getting "low 4's" seems nowhere near as bad as the frustration of missing out on a refi opportunity (moving from 5% to 4.25% for instance) altogether.

MUST READ GUIDANCE: Refi Roadmap: A Locked Rate Isn't a Closed Loan

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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 30year 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?