Mortgage Rates: Same Rates, Slightly Higher Borrowing Costs

By: Matthew Graham • Tue, Sep 13 2011, 4:24 PM

Today's post might as well be yesterday's. Precious few differences exist between today and yesterday in the world of Mortgage Rates. Whereas things slightly improved yesterday, they were slightly weaker today. No changes in BestExecution rates and only minimal increases to borrowing costs. That means that your GFE should have the same interest rate on it as yesterday, but that the closing costs required to get that rate edged up marginally.

The "guidance" section is unchanged today from yesterday, but we're probably slightly more conservative today. Tomorrow has more economic data to digest than the previous two days this week, but it remains to be seen what kind of market moving potential they have versus headlines out of Europe.

CURRENT MARKET*: The BestExecution 30-year fixed mortgage rate is now solidly at 4.125%. Several lenders are willing to offer lower rates, but in most cases, those quotes carry additional closing costs. On FHA/VA 30 year fixed BestExecution is straddling 3.875% and 3.75%. 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 3.375%. Five year ARMs are best priced at 3.125%.

See Rates from Lenders in Your Area

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 (unchanged): BestExecution rates haven't changed, but we're close to a changing of the guard from 4.125 down to 4.0. If you're aggressively pursuing that extra eighth of a percent of improvement in rate, and don't mind paying extra closing costs if the market moves against you, this is one of those rare occasions were we're close enough to moving lower in BestExecution and far enough away from moving higher than a short term could work. We'd caution that much of the current strength in bond markets is due to uncertainty in Europe and the headlines that can change that outlook DO NOT adhere to a schedule. In other words, things can change rapidly. As a general rule, when 4.125% and 4.0% are the two best candidates for a BestExecution rate, we favor locking due to the nearness to all-time lows.

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?