Mortgage Rates: Solidifying Friday's Lower Rates

By: Matthew Graham • Tue, Sep 6 2011, 4:03 PM

After Friday's lackluster Jobs Report helped Mortgage Rates on Friday, we headed into this holiday-shortened week without much on the calendar to provide guidance... But guidance came overnight courtesy of global European markets adding to global economic concerns. Rates improved again, solidifying Friday's shift lower in BestExecution rates.

CURRENT MARKET*: The BestExecution 30-year fixed mortgage rate has moved down to 4.125%. Several lenders are willing to offer lower rates, but those quotes carry with them additional closing costs. On FHA/VA 30 year fixed BestExecution has improved back to 4.000%. Deals can be structured with lower rates, but again, you'll pay more for those, so make sure you assess the time it takes to break-even on the extra expense. 15 year fixed conventional loans are best priced at 3.625%. Five year ARMs are still best priced at 3.250%. ARMs seem to have bottomed out.

A note on the greater-than-normal variation in rate offerings between lenders. 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. Additionally, the recent rates rally makes lenders busy enough that some control their inbound volume by raising rates regardless of the secondary mortgage market in order to discourage new applications/locks.

GUIDANCE: We're back within an eighth or two of the best rates of all time, increasing our bias toward locking. Time and again lately, we've seen BestExecution rates hit this 4.125% level, with some offerings slightly lower. The nearness to all time lows is a great argument for locking. Over the years, we've seen a lot of frustration out there from folks who waited for rates to get solidly into the high 3's and ultimately missed out on a refi opportunity altogether. While we have witnessed frustration among folks who locked in the low 4's only to get a glimpse of 3.875%, that's certainly been a lesser, different sort of frustration. As long as you follow what we're saying there, we will tell you that future glimpses of 3.875% BestExecution rates are not out of the question, but we feel like we should reiterate once more, they're not guaranteed and the current low 4% offerings can vanish fairly quickly. If you wait for high 3's, be ready to lock low 4's at a moment's notice, and potentially at a loss from where you sit today.

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

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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?