Mortgage Rates Marginally Improved. To Pay or Not to Pay Points?
While the dollar touched a 15 month low and stocks hit a fresh 13 month high yesterday, the bond market minded it's own business, quietly trading in a tight range, ending the session near the intraday price high/yield lows. This calm and collected recovery in benchmark rates helped prices of mortgage backed securities move slowly but steadily higher on the day. With the economic data calender having nothing new to offer, the Treasury market benefited from a very strong auction of 3 year Treasury notes. Following the auction, MBS prices rallied on, allowing a few lenders to reprice for the better by day's end.
Like yesterday, today's econ calendar is data free, however, a few Fed officials are speaking which can always generate conversation in the marketplace. First, Atlanta Federal Reserve Bank President Dennis Lockhart will speak about the economy to the Urban Land Institute conference in Atlanta. Next, San Francisco Federal Reserve Bank President Janet Yellen will speak to the Lambda Alpha International on the economy and real estate. Finally, Dallas Federal Reserve Bank President Richard Fischer will speak in Austin on his economic outlook.
At 1pm eastern we have another round of Treasury debt being offered. Today, the U.S. Department of Treasury will auction $25 billion 10 year notes. If the trend of strong demand for our nation’s debt continues, MBS should be able to hold in the current range. This will also be covered on the MBS Commentary blog, check it out.
For more on the day ahead, read the MND STORY.
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Reports from fellow mortgage professionals indicate mortgage rates are marginally improved from yesterday. This keeps the par 30 year conventional rate mortgage in the 4.75% to 5.00% range for well qualified consumers. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, the par rate is holding at 4.25% to 4.50% with similar costs.
I get asked the quite often..."Should I pay points?"
My advice is to always get a quote with you paying just closing costs and one where you are paying the closing costs including one point. With the two quotes, look at the difference in closing costs and the difference in payment and determine a breakeven point.
For example, let’s say you are doing a $200,000 loan and the closing costs are $3000 with no points and $5000 with a point. Lets also say that the difference in the payment between the two quotes is $30 per month. Take the cost difference of $2000 and divide by the monthly payment difference of $30 to get a breakeven point which in this case is 66 months. If you plan on keeping the home for a longer period of time, than it is wise to pay the additional costs to secure a lower rate. If you plan on keeping the home for a shorter period, than it is better to pay less costs and secure the higher interest rate. This example does not take into account the tax deductibility of the point paid which would reduce the breakeven point.
THIS calculator from Andrew Kalotay and Associates is a great way to determine what points structure is best for you.
Feel free to ask questions in the comment section below.