Mortgage Rates: Illustrating Lifetime Lows

By: • Fri, Aug 19 2011, 2:22 PM

Despite a volatile back-drop, mortgage rates continue to hover near all-time lows.

The reason we bring up volatility again is, although many lenders have greatly improved their consumer rate quotes over the past two weeks, there is an increased amount of variety in what individual lenders are now 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. 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.

See Rates from Lenders in Your Area

That explanation aside, the lowest home loan borrowing costs of our lifetime are illustrated in the chart below. If the note rate line is moving up, the closing costs associated with it are on the rise. If the note rate line is moving down, the closing costs associated with it are falling. Consumer borrowing costs recently fell to new record lows before moving modestly higher today. One should notice 4.000% and 4.250% quotes specifically, they were more aggressive this week than they were in late-October 2010.

Now is a fantastic time to refinance!

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

CURRENT MARKET*: The Best Execution 30-year fixed mortgage rate is 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.

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.

MORE GUIDANCE: Refi Roadmap: A Locked Rate Isn't a Closed Loan <-- must read

----------------------------

*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?