Mortgage rates continue to enjoy a period of relief after rising rapidly in recent weeks. The extent to which this relief period matures into a more extended and stable mortgage rate rally is still undecided, but at least now it's possible. Those looking to stay as protected as possible even during potentially more favorable times still need to keep an eye out for the risks that crop up along the way. We discuss the current risks in the "New Guidance" section below.
CURRENT MARKET: The "Best Execution" conventional 30 year fixed mortgage rate is 5.00%. There is an opportunity to lock 4.875% for those who wish to buy down their rate, but this quote carries higher closing costs than 5.000%. The upfront cost of permanently buying down your rate from 5.000 to 4.875% may not be worth it to every applicant. We would generally advise the permanent floatdown if you plan to hold your new mortgage for longer than the next 5 years. Ask your loan officer to run a breakeven analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is 4.75%. 15 year fixed conventional loans are best priced between 4.125% and 4.25%. Five year ARMS are best priced between at 3.625 and 3.75%.
PREVIOUS GUIDANCE: A flight to safety* poured into the bond market today. This allowed lenders to improve loan pricing on first releases of rate sheets. Positive progress lasted throughout the day and many lenders were able to reprice for the better. As a result "Best Execution" mortgage rates have moved lower. Although we remain defensive, we are seeing signs that imply mortgage rates are due further improvements. The secondary mortgage market rally is however still quite immature and our confidence level has only improved modestly. READ MORE <--- You must read this post if you are thinking about floating for lower mortgage rates.
NEW GUIDANCE: Despite some weakness in the overall bond market, mortgage rates were able to maintain the improvements seen yesterday. This is a positive sign considering a relatively weak Treasury auction occurred today, and that would normally have a negative impact on the rates outlook. The market is certainly THINKING about shifting back into a more rate-friendly stance, but that remains up-in-the-air to a certain extent. Additionally, there is another treasury auction tomorrow, and if that goes as poorly as today's did, we'd likely lose a bit of ground in the form of increasing closing costs to obtain a similar best execution rate.
What MUST be considered BEFORE one
thinks about capitalizing on a rates recovery?
1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the secondary mortgage market?
"Best Execution" is the most 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 buydown
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 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
*A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.