It finally happened. The range has been officially broken. In the wrong direction.....
The RANGE that has been the topic of so much conversation here has finally been broken. Over the past 6-8 weeks, we've sat through an extremely stagnant market in terms of mortgage rate movements. The only volatility we've experienced was seen in the closing costs associated with obtaining a "Best Execution" mortgage rate. Through all that time, it was 4.875, more than any other note rate, that emerged as the "sweet spot" (best-execution) rate for conventional conforming 30 year fixed home loans.
4.875 is still obtainable on rate sheets, but you'll have to pay much more for it than you have earlier this week. The new conforming 30 year fixed best execution note rate range lies between 5.00 and 5.125%. In another way of thinking, that means that the closing costs that previously were enough for a 4.875 rate are now only enough to get 5.00/5.125%.
Honestly, it could be worse. We've been very defensive about the amount of stored energy that was likely to be released when the range finally gave way, and we suspected it's best chance of happening would be after today's Jobs Report. It prompted us to write things such as:
If you are currently being quoted a rate that would reduce your monthly loan payment (enough to be worth the hassle of refinancing), the intermediate term direction that mortgage rates take is largely dependent on this jobs report and revisions to the previous data.
Floating into and through this economic data release is a high risk event. Which means the best execution 30 year fixed mortgage rate could move 0.25% to 0.375% higher.
Rates are at their worst levels since mid-December. This happened because the bond market is expecting a strong jobs report tomorrow. If mortgage rates do bounce back tomorrow, we are still facing an uphill battle and there's no guarantee borrowing costs would continue to improve. If they go worse, it's possible they'd get way worse very very fast!
And it's as simple as that: "way worse, very very fast." That damage has been done. And it happened in the blink of an eye this morning, though things continued to worsen incrementally as the day wore on. To illustrate the recent behavior of mortgage rates, we offer this chart which graphs the average note rate costs offered by the five major mortgage lenders. The majority of the damage was done yesterday and today.
Each line is 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. SEE OUR MORTGAGE RATE DISCLAIMERS AND OTHER ASTERISKS BELOW.
Plain and Simple: If the note rate line is moving up, the closing costs associated with that quote are rising. In December, closing costs rose rapidly which significantly altered the mortgage rate market. Mortgage rates have since improved from those levels. The best opportunity to lock over the past month was on January 14th. Just as closing costs rose rapidly in December, closing costs rose rapidly today. Check out the spike!
"Bext Execution" is the most efficient combination of note rate 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 buydown costs.
Important Mortgage Rate Disclaimer: 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 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the intense fiscal frisking that comes along with the underwriting process.
MORE EXPLANATION ON THE GRAPH: As an example, 4.00% note rates would cost a borrower 6.50 discount/origination points at the closing table, as a percentage of their loan amount. This is clearly not advisable nor is it attainable. A more relevant example is the 5.00% note rate. 5.00% is very close to the 0.00% line. If you do receive a lender credit on that note rate, it is only because you were asked to pay an origination fee.